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The GST Regime in New Zealand
Finance Monthly interviews Richard Ashby for their Special Feature Report – a tax partner at Gilligan Sheppard, Richard’s is tax specialist with a large proportion of his work focusing on advising on GST-related matters, he introduces the regime and the key complexities that surround it.
What are the requirements for businesses in New Zealand to register for GST?
GST registration requirements are not solely applicable to those persons carrying on a business in New Zealand, but instead potentially apply to any person carrying on a taxable activity (not restricted to NZ), which is making supplies of goods and/or services in New Zealand.
A taxable activity is defined as being any activity which is carried on continuously or regularly, whether or not for a profit, involving the supply of goods and services to any person for a consideration (subject to some defined exclusions).
Where the value of the supplies made in New Zealand for the past twelve months have exceeded the registration threshold, or the value of the supplies in the next twelve months is expected to exceed the registration threshold, then the supplier has an obligation to register for New Zealand GST. Presently the GST registration threshold is $NZD60, 000.00.
The residence of the supplier can dictate whether supplies are deemed to be made in New Zealand or not, which in turn can affect whether the GST registration threshold will be exceeded. In this regard, often where a non-resident supplier is making a supply to a New Zealand-based GST registered recipient, the legislation will deem the supply to be made outside of New Zealand (and consequently ignored for the purpose of the threshold calculation), unless the parties agree otherwise.
What are the viable options for businesses that are not required to register, but wish to voluntarily do it? What are the common reasons for wishing to voluntarily register for GST?
New Zealand’s GST legislation permits a person to still register for GST even where there is no requirement to do so. The person essentially just needs to show that they are carrying on a taxable activity.
Prior to legislative changes effective 1st April 2014, a person also needed to ensure their taxable activity was making supplies of goods and/or services in New Zealand to avoid the Inland Revenue subsequently cancelling their registration when it became clear to the Inland Revenue that this was not the case.
However, non-residents are now able to register for New Zealand GST purely to recover any GST costs incurred by them in undertaking activities in New Zealand in respect of a taxable activity carried on outside of New Zealand. For example, an Australian business decides to hold its annual staff training conference in New Zealand and incurs New Zealand GST with respect to conference centre hireage and hotel accommodation costs. Provided the quantum of GST to be claimed in the first GST return was more than $500, the non-resident would be able to register for New Zealand GST to recover this cost, thereby effectively reducing the cost of undertaking New Zealand based activities.
Commonly a person will voluntarily register for New Zealand GST where they are in the startup or development phase of their business cycle, with costs incurred exceeding revenues earned. These businesses are often cash strapped and consequently the ability to obtain regular refunds of GST paid, can provide some much-needed relief to cash flow funding requirements.
What are some of the key issues that your clients need assistance with in relation to registering for GST? What are the complications that are likely to arise postregistering?
Registering for New Zealand GST is a relatively simple process for New Zealand resident businesses, where the documentary evidence required by the Inland Revenue is not as onerous as it is for nonresidents applying for a tax file number (the first step in the registration process).
Most of our time in this area is consequently with respect to assisting non-residents applying for registration and ensuring they have the necessary certified documents to verify to Inland Revenue they are who they say they are.
Once the registration process is completed, the return filing and payment process is usually relatively straight forward, although we do recommend to our clients that we at the very least review the first few returns pre filing to Inland Revenue to ensure any compliance issues are quickly identified and remedied.
The proposed New Zealand GST on remote services supplied from abroad to domestic customers is expected to come into effect on October 1, 2016 – how is the potential amendment going to affect New Zealand consumers?
Unless the non-resident is prepared to wear the impact of the new requirements to charge GST, the immediate affect for the New Zealand consumer will be a 15% price increase.
A second impact could be that some non-resident service providers decide to pull out of the New Zealand market to avoid the additional compliance obligations, reducing the level of choice of service providers for the New Zealand consumer. I suspect however that most global providers of services will already be faced with various VAT/GST requirements in other trading jurisdictions and consequently New Zealand’s rule changes will be business as usual for them, simply passing on the additional cost to the end user.
What is the current impact of the lack of legal obligation to applying GST to remote services for overseas providers?
One rationale behind the introduction of the new rules is the levelling of the playing field between resident and non-resident suppliers of an identical service. Presently, the non-resident has a 15% head start over the resident supplier and it is the New Zealand Governments consistent objective to remove tax aspects of a transaction from being a consideration in any buying decision by New Zealand consumers. Time will tell, therefore, whether the new rules do indeed result in a change in consumer behaviour in favour of resident suppliers.
What are the challenges of presenting your findings and recommendations in relation to IRD risk reviews so that they can be understood and adopted?
Most IRD risk reviews arise as a result of GST refund claims lodged by clients and our constant challenges with Inland Revenue in this regard, is providing the necessary documentary evidence to substantiate the claim and proving the entitlement to claim exists on the basis of the client’s reason for acquiring the good or service.
Where we are involved in the GST return preparation process, the risk of an IRD review is substantially reduced or even if one is triggered, resolution is usually achieved quite quickly due to the advance preparation undertaken. Consequently more often than not complications arise where the client has prepared and filed their own GST returns and we are only engaged when the client has received a risk review letter from Inland Revenue.
What tactics do you employ when assisting clients who are having difficulties meeting their tax payment obligations? What are the main considerations that need to be taken into account in repayment arrangements with the IRD?
Two key elements with respect to any Inland Revenue debt – communicate early and once an arrangement has been agreed, commit to it and ensure all required payments are made on time. It is not often that I experience an IRD officer that is not willing to work with you to assist a client in financial difficulties, where you have been pro-active in communicating with the Inland Revenue, and you provide good evidence of the client’s true financial position which supports whatever arrangement you are trying to conclude, whether it be monthly repayments over a period of time or a full write-off of the debt on hardship grounds.
So be pro-active (you do not even have to wait until a debt is due) in advising of potential payment difficulties and do not overcommit when negotiating a repayment schedule knowing that a default in the arrangement is likely to occur.