Tax Updates: 29 July 2024

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 [email protected].

GST drafting error identified

Have you been surprised by a recent notification from Inland Revenue (IR) advising that your refund claim for the latest March annual adjustment period has been put on hold? This is because they are considering how to deal with an apparent drafting error in the recent GST amendments.

You may recall the changes to simplify the GST adjustment rules made in 2023. One change was the ability to make a one-off single adjustment to reflect a permanent change of use of an asset in the annual March adjustment period during which the use change occurred. This was a shift from the previous rule, which involved a two-step process.

It is considered that the wording of the present legislation means that the simplified adjustment rule is not available for an asset acquired pre-April 1, 2023, where that asset is not used to make taxable supplies until on or after April 1, 2023 (including those persons who were not registered for GST at the time of acquiring the asset). This is because the new rule applies for ‘adjustment periods’ starting on or after April 1, 2023. As the first adjustment period for any asset commences on its date of acquisition, the taxpayer cannot utilise the new rules if that date of acquisition is pre-April 1, 2023.

Now, this was not the intention of the simplified rules – they were supposed to apply to all taxpayers regardless of the acquisition date of the asset. Consequently, an amendment (with retrospective effect) will be included in the next omnibus tax bill. However, as an interim measure, IR has released a draft Order in Council for comment, which, if ultimately recommended by the Minister of Revenue to proceed, will be the temporary fix (achieving the desired outcome) until the amended legislation is enacted.

If you would like to comment on the 6-page draft Order in Council, you have until August 12, 2024, to do so.

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.