GST Deregistration for Non-residents
Policy issues: GST deregistration for non-residents who do not carry on a taxable activity in New Zealand. This amendment applies to persons who register on or after 21 June 2005.
Section 52(7) of the Goods and Services Tax Act 1985
The Commissioner has been given the discretion to deregister non-residents who do not carry on a taxable activity in New Zealand, to prevent the inappropriate refund of GST on their purchases in New Zealand.
The GST Act allows non-residents to register in New Zealand for GST purposes without carrying on any taxable activity in New Zealand if they carry on a taxable activity overseas. They do this so they can get input tax credits for their expenditure in New Zealand, which may be an appropriate treatment in some cases. For example, when a person intends to carry on a business activity in New Zealand in the next 12 months, but is in the process of getting ready for that activity, GST refunds should be allowed.
When non-residents have only a passing or temporary presence in New Zealand, however, it is not desirable, from a policy perspective, to allow them a refund of the GST on their purchases in New Zealand. An example of when a refund is not appropriate is when an entity not resident in New Zealand supplies services in New Zealand for which it charges nil consideration. The entity carries on no taxable activity in New Zealand, but can register for GST purposes in New Zealand because it is carrying on a taxable activity overseas.
A non-resident should not be able to claim a GST refund for making supplies in New Zealand for which it does not charge anyone. The entity's profile is the same as a final consumer, yet, for purposes of GST it is treated as a business. This meant it could previously claim back the GST on its purchases - often of an entertainment or accommodation nature - in New Zealand. The amendment gives the Commissioner of Inland Revenue the discretion to deregister a taxpayer in appropriate cases.
New Zealand already collects GST from non-resident businesses that have only a passing connection with New Zealand. The amendment buttresses this power as it will discourage non-residents who are in New Zealand temporarily and have no intention of carrying on a taxable activity in New Zealand from registering for GST in order to claim the GST back on their purchases in New Zealand.
The Commissioner, under section 52 of the Goods and Services Tax Act 1985, is able to cancel the registration of a non-resident who does not carry on a taxable activity in New Zealand. The effect of this deregistration is that the non-resident will not be able to claim back the GST incurred on the goods and services it purchases in New Zealand or it will trigger a supply and consequent output tax liability under section 5(3).
Consistent with other deregistration provisions, this deregistration could have effect back to the date on which the non-resident was registered for GST in New Zealand if a taxable activity was never carried on in New Zealand from that date.
The amendment is directed primarily at non-residents who have only a passing or temporary connection with New Zealand and who should be treated as final consumers of the goods and services they purchase in New Zealand and are therefore not entitled to a GST refund.
Inland Revenue will prepare guidelines explaining the circumstances when the discretion to deregister a non-resident will be exercised and when it will not. For example, the discretion will be exercised to prevent non-residents who are temporarily in New Zealand and do not carry on or intend to carry on any taxable activity in New Zealand, and whose only supplies in New Zealand are made for nil consideration, from having the GST on their purchases in New Zealand refunded. The discretion will not be exercised if the non-resident intends to carry on a taxable activity in New Zealand and registers before beginning operations in New Zealand.
The amendment applies to persons who register for GST on or after the date of enactment, 21 June 2005.