Tax Updates: 11 August 2025

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at richard@gilshep.co.nz.

Interpretation Statement on meaning of ‘payment’ for GST

Inland Revenue (IR) has issued a draft interpretation statement (IS) titled “GST – Meaning of payment,” with the reference PUB00520. The draft document is 22 pages long and its purpose is to discuss the meaning of ‘payment’ for GST purposes, which is relevant for determining the time of supply, the tax period for which you return output tax or claim an input tax deduction, and eligibility for a second-hand goods input tax deduction.

The document summary notes some of the different ways in which a payment can be made, including with money (obviously), transferring property or providing services, using a promissory note or bill of exchange, a separate loan agreement with the supplier, or via set-off of an existing debt owed by the supplier to the recipient.

From a time of supply perspective, when the recipient makes a payment to a stakeholder, they have made a payment for GST purposes. However, when a supplier receives a payment in the capacity of a stakeholder, they will not receive the payment for GST purposes until they receive a beneficial interest in the payment (usually when the conditions of the supply contract are satisfied).

I suspect that you are all aware that the general time of supply rule is the earlier of the time an invoice is issued by the supplier or the recipient, or the time any payment is received by the supplier. However, for a person registered for GST on a payments basis, when to account for GST output tax or claim for GST input tax is determined by the extent to which a payment has been made or received during the relevant GST period. Claims for second-hand goods (regardless of a person’s registration basis) are also restricted to the extent that a payment has been made during the GST period.

Often, particularly when associated parties/friendly parties are involved in the transaction, we use vendor loans to satisfy the ‘payment’ criteria for both GST and income tax purposes. Be careful, however, that loans are carefully documented. Simply deferring the payment or leaving an amount owing under the supply agreement and then trying to argue subsequently with IR that a loan agreement was in place may leave you in a rather embarrassing position with your client, when the Revenue’s position is that no payment has been made.

This is a concept you may have heard of called an economic equivalent approach. There is no real difference between, for example, an amount left owing under a supply agreement or an amount owing under a separate loan agreement. The same amount is still owed by the recipient. However, there is a difference from a GST perspective, where whether payment has been made is determined by the legal effect of the transactions entered into and not by what the parties might have done to achieve the same outcome.

And accounting journal entries alone will often not be sufficient to illustrate the true legal effect of the transactions entered into by the parties. Can you tell just from the journal entry that a loan agreement has been executed between the parties, as opposed to the amount just being left owing under the supply agreement?

Throughout the draft IS are a number of examples to illustrate the content. If you would like to comment on any of that content, the closing date for submissions is 10^th September 2025.s.

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.