Amendments to the GST transitional rules

Minor amendments to the transitional rules in tax legislation accommodate the GST rate change that became effective from 1 Oct 2010.

Sections 78(3) and 78AA of the Goods and Services Tax Act 1985 and section 139B of the Tax Administration Act 1994

Minor amendments have been made to the transitional rules in the Goods and Services Tax Act 1985 and the Tax Administration Act 1994 to accommodate the GST rate change that became effective from 1 October 2010.

Background

As part of changes to the tax system announced by the Government in Budget 2010, the rate of GST increased from 12.5% to 15% from 1 October 2010. To help businesses transition to the new rate, further changes to the Goods and Services Tax Act 1985 (GST Act) and the Tax Administration Act 1994 were introduced in the Budget night legislation, and as part of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 to supplement the transitional rules already provided in the GST Act.

Key features

Effect of the rate increase on prescribed fees and charges

Section 78(3) of the GST Act allows prescribed government fees and charges to automatically increase to cover the additional increase to the tax. This removes the legal and administrative costs of government agencies having to amend the relevant Acts and regulations to accommodate changes to the GST rate. The section contains a proviso to ensure that government benefits are not automatically adjusted to reflect changes to the rate. As previously drafted, this proviso had the effect of possibly exempting public authorities from paying the automatic increase in GST on a government fee or charge unless the prescribed Act or regulation (which set the fee or charge) was specifically amended to reflect the new GST rate. The proviso was not intended to have this effect and therefore has been amended to ensure that public authorities, required to pay a fee or charge set under an Act or regulation, are not exempt from paying the increase in GST.

Corrections to legislative provisions

Two drafting omissions in the transitional provisions, enacted as part of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010, have been corrected. Section 78AA(5) has been amended to correct an error in the description of the supplies to which the finance lease provisions apply. Section 78AA(12) has also been amended to insert a missing cross-reference.

The notification requirement in the finance lease transitional rules (section 78AA(4)(g)) has not been changed to align with the change made to section 78AA(5). A change to this section was considered undesirable, given the 30-day notification period had elapsed and the finance lease rules operate prospectively in respect of the 1 October 2010 rate change. Such a change could have had the effect of invalidating notices that had already been issued.

Reinstatement of late payment grace period

Section 139B of the Tax Administration Act was amended by the Taxation (Budget Measures) Act 2010 to enable a taxpayer's late payment grace period to be reinstated if the cause of the late payment was due to the GST rate change. The Budget night amendments, however, had the effect of only allowing reinstatement if penalties were remitted. Section 139B has, therefore, been further amended to ensure that remissions of interest attributable to the rate change can also be taken into account when reinstating a taxpayer's late payment grace period.

Application dates

The amendments to sections 78(3) of the GST Act and 139B of the Tax Administration Act apply from 1 October 2010, the date of the GST rate change.

The amendments to section 78AA of the GST Act apply from 7 September 2010, the date those transitional rules were enacted.