Issued
01 Jul 1986

Goods and Services Tax Amendment Act 1986

Archived legislative commentary on the Goods and Services Tax Amendment Act 1986 from PIB vol 147 Jul 1986.

This commentary item was published in Public Information Bulletin Volume 147, July 1986

More information about Public Information Bulletins.

This Bulletin is a commentary on the GST Amendment Act 1986 which became law on 8th of August 1986.

The Goods and Services Tax Act 1985 became law on 3 December 1985. Since that time a number of drafting errors have been detected and further work has been done on identifying areas where the existing legislation does not accurately reflect the underlying policy. The GST amendment Act 1986 remedies these areas which have been identified since the Goods and Services Tax Act was passed.

This bulletin is intended as a basic technical explanation of the provisions of the Amendment Act. It follows the order of the provisions of the Amendment Act with cross-references to the corresponding section of the Goods and Services Tax Act 1985 in each heading and where appropriate in the text.

Please note that any inquiries should be directed to the District Office which holds the record of the registered person to which the query relates. They should not be directed to Head Office. District Office staff will be happy to assist with any problems or questions you may have.

Significant Changes

Many of the amendments contained in the GST Amendment Act 1986 are of a minor nature to correct drafting errors, or to ensure that the legislation more accurately reflects the intention of Government. Significant changes have been made in the following areas:

  • amendments to the definition of "commercial dwelling" and changes to the method of valuing stays of longer than 4 weeks.
  • standardising open market value as the GST inclusive value.
  • zero-rating of exported goods where no entry for export is made.
  • zero-rating of the domestic element of the international transportation of goods and passengers.
  • the zero-rating of the supply of fine metal by a refiner to a dealer in fine metal. Those supplies that are not zero-rated are exempt supplies under section 14 of the GST Act.
  • restricting the application of section 11(2)(e) of the GST Act to services where the benefit of those services is enjoyed overseas.
  • Road User Charges paid on or after 1 December 1986 will be fully taxable.
  • modification to the exemption of rental of domestic housing to cover cases where a ground rent is paid to a landlord for the land on which a dwelling is erected.
  • ensuring that registered persons with one or six-monthly return periods have the same rights as registered persons with two-monthly return periods.
  • clarification of the provision which allows the Commissioner to extend the time for the filing of GST returns by non-profit bodies, where special circumstances apply.
  • increasing the threshold for use of the payments basis of accounting to $500,000.
  • a secondhand goods credit will not be allowed upon the supply of any fine metal.
  • allowing registered persons to make a one-off adjustment for private or exempt use of capital assets with a value of less than $10,000.
  • removal of the need for the address of the supplier to be shown on a tax invoice.
  • various amendments to apply the same conditions to debit and credit notes as are applied to tax invoices allowing companies to group with persons other than companies.
  • allowing a registered agent to claim input tax on behalf of a non-resident, non-registered principal in relation to the exportation or importation of goods.
  • deeming the supply of services over a period to be continuously and uniformly performed over that period (for the purposes of the transitional provisions)
  • redrafting the transitional provision relating to the supply of buildings and civil engineering works to ensure that it only applies to the supply of goods in the form of construction, major reconstruction, manufacture, or extension of a building or a civil engineering work after 1 October 1986 under a written contract entered into prior to 1 October 1986.
  • redefining reviewable and non-reviewable contracts.
  • allowing an alternative method of accounting for transitional supplies to registered persons who use the payments basis.

Section 1 of the GST Amendment Act 1986 Short Title and Commencement

Comment

This section simply ensures that the Act is known as the GST Amendment Act 1986 and has the same application date as the GST Act itself (ie, December 1985).

Section 2 of the GST Amendment Act 1986 Interpretation Section 2 of the GST Act 1985

Section 2(1) Associated Persons

Amendment

This amends the definition of associated persons to include a company and a shareholder with more than a 10% interest in that company.

Comment

The GST Act provided a special valuation rule for supplies made to "associated persons". That term was defined in the GST Act through section 67 of the Income Tax Act 1976 to include any person holding a 25% or greater interest (in terms of shareholding or paid-up capital) in a company.

The Act also provided a special valuation rule in respect of supplies made to employees, where those supplies were fringe benefits and were subject to FBT. However, FBT does not apply to shareholder employees with 10% or more of the shareholding or control of that company.

No special valuation rule, therefore, was provided for persons with shareholdings between 10% and 25% in any company.

Those persons would, in the absence of this amendment, have been able to receive supplies from the company at less than cost, or free, and would have paid less (or no) GST than they should on that consumption. They would also have escaped GST on the value of any fringe benefit.

Section 2(2) and 2(3) Commercial Dwellings

Amendment

Section 2(2) and 2(3) of the Amendment Act amend the definition of "commercial dwelling" to exclude hospitals.

Comment

These amendments mean that long term accommodation in a hospital will not be subject to the valuation provision contained in section 10(6) of the GST Act except to the extent that the hospital is a "residential establishment". This will mean that long term accommodation in a geriatric ward, for example, will be subject to the special valuation provision.

Hospitals were included as "commercial dwellings" in order to recognise the element of accommodation supplied to patients. This treatment has been reviewed, given that the accommodation is incidental to medical treatment, and that there could be compliance difficulties for hospitals in separately charging for:

  1. accommodation ("domestic goods and services") and
  2. other services such as medical, meals, etc.

In recognising these compliance difficulties, hospitals are now excluded from the commercial dwelling definition, except to the extent that the hospital is a "residential establishment". A definition of "hospital" is contained in section 2(8) of the Amendment Act.

Section 2(4) Consideration

Amendment

This specifically excludes from the definition of "consideration" unconditional gifts made to non-profit bodies.

Comment

As far as possible donations received should not form part of the amount on which registered persons should calculate and pay GST. To do otherwise might seriously affect the fund-raising capacity of churches and other non-profit bodies.

In drafting the Act it was therefore necessary to give effect to that policy, while at the same time giving a broad meaning to the word "consideration", which is a key concept in the tax.

This concept must be wide enough to include payments made under a statute (eg local authority rates), or voluntarily, as well as payments under contractual obligations. It is the aspect of voluntary payments which gives the most difficulty. While the tax must not be subject to avoidance through the device of turning fees for services into "donations", there is a conceptual line between that and the case of pure gifts which involve no direct or indirect flow of a benefit to the donor. Thus, while the tax ought to apply to school activity fees, or Lottery Board grants, which are direct payments for the consumption of goods and services, it ought not to apply to donations given in a street appeal, or to bequests made to non-profit bodies.

The amendment gives effect to this policy by excluding unfettered gifts made otherwise than in the course of carrying on a taxable activity, and where no identifiable valuable benefit flows back to the donor or any associated person.

Section 2(5) Input Tax

Amendment

This amends the definition of "input tax" in Section 2 of the GST Act to limit the consideration for the purchase of secondhand goods from associated persons to the lesser of purchase price or open market value.

Comment

This amendment was necessary as it became apparent that a registered person could have acquired secondhand goods from an associated person at a price that was deliberately inflated and have obtained an increased input tax credit.

The addition of the proviso to the definition of input tax that deems the consideration in money to be equal to the lesser of the purchase price or the open market value has removed this anomaly.

Section 2(6) Resident

Amendment

This amends the definition of "resident" to include an unincorporated body of persons which has its centre of administrative management in Hew Zealand.

Comment

The residency rules were based on those in the Income Tax Act, which itself contains no rule relating to unincorporated bodies, partnerships or trusts. This amendment closes that gap by deeming such bodies to be resident in New Zealand if any taxable activity is carried on here or if the centre of administrative management is in New Zealand.

Section 2(7) Secondhand Goods

Amendment

This amends the term "secondhand goods" to exclude any "fine metal" from this definition. It also excludes any goods manufactured or made from gold, silver or platinum, or any other substance which, if they were of the required fineness, would be "fine metal".

Comment

This amendment denies an imputed credit for the purchase of gold, silver and platinum by excluding "fine metal" from the definition of secondhand goods. This is a consequential amendment due to changes made by subsections 9(3) and 12(3) of the Amendment Act.

Section 2(8) Tax Payable

Amendment

This extends the definition of "tax payable" to specifically include tax refundable pursuant to sections 19 and 20 of the GST Act.

Comment

Section 27 of the GST Act allowed the Commissioner to issue an assessment in respect of "tax payable" but it was not clear whether this allowed an assessment to be issued in any case where a refund occurred. The amendment clarifies this and ensures that the Department can issue assessments for refund returns.

Section 2(9) Definitions of "Dealer in Fine Metal", "Fine Metal", "New Fine Metal", "Refiner of Fine Metal"

Amendment

This provides definitions of "Dealer in Fine Metal", "Fine Metal", "New Fine Metal", "Refiner of Fine Metal". These are necessary due to changes made in the following sections of the Amendment Act:

  • Section 2(7) The definition of "secondhand goods" excludes "Fine metal" from being a secondhand good, therefore an imputed tax credit cannot be claimed upon its purchase by a registered person from a non-registered person.
  • Section 9(3) Zero-rates the first supply after the refining of "New fine metal" by the refiner to a "Dealer in fine metal", where that "Fine metal" is an investment item.
  • Section 12(3) Amends section 14 of the GST Act to exempt any supply of "Fine metal" which is not zero-rated.

Comment

The definition of "Dealer in fine metal" is intended to cover persons whose principal business activity is to purchase and supply "Fine metal" as an investment item. Basically these are the gold, silver and platinum traders who sell "fine metals" to the public.

The definition of "Fine metal" includes gold, in any form which is of a fineness not less than 99.5 percent and silver and platinum which are of a fineness not less than 99.9 percent and 99.0 percent respectively. This definition also provides that the Governor-General can declare any other substance to be a "Fine metal".

The definition of "New fine metal" covers any "Fine metal" which has been refined into that state.

The definition of "Refiner of fine metal" is designed to cover persons whose business it is to convert or refine any "Fine metal".

Section 2(9) Definition of "Hospital" and "Residential Establishment"

Amendment

This provides definitions of "Hospital" and "Residential establishment".

Comment

  1. The definition of "Hospital" is required for the purposes of excluding hospitals from the definition of "commercial dwelling" (refer section 2(3)).
  2. The definition of "Residential establishment" is intended to include as commercial dwellings those which specialise in long-term stays; for example school and university hostels, boarding houses, hospices and rest homes. This also includes any part of a hospital so used, eg a geriatric ward. This definition is used in a new proviso to section 10(6) of the GST Act which is inserted by section 8(6) of the Amendment Act. Further comments are contained in the commentary on section 8(6).

Section 2(9) Definition of "Unconditional Gift"

Amendment

This provides a definition of "Unconditional gift".

Comment

The definition of "Unconditional gift" is necessary in the light of the amendment to the definition of "consideration" contained in section 2(4) of the Amendment Act.

The definition of "unconditional gift" is designed to cover genuine donations to non-profit bodies.

Note that "no identifiable direct valuable benefit" may be received by either the person making the payment or an associated person. Thus club membership subscriptions described as donations are not "unconditional gifts".

Donations in church collection plates, donations made in door-to-door appeals; voluntary contributions made to museums etc will all qualify as unconditional gifts.

Note that in this context "valuable" means capable of being valued.

Section 3 of the GST Amendment Act 1986 Financial Services Section 3 the GST Act 1985

Section 3(1) Payment or Collection of Interest Dividends and Principal

Amendment

This inserts a further paragraph, (ka), in section 3(1) of the GST Act, to specifically include the payment or collection of interest, dividends and principal in the definition of "financial services".

Comment

It was previously unclear whether the act of paying or collecting interest, dividends, and principal was an exempt activity. This amendment remedies this, and also extends the meaning of exempt activities to activities such as the handling of investment funds, thereby ensuring that charges made for such activities are exempt.

Section 3(2) Consequential Amendment

Amendment

This amendment is consequential to the amendment contained in section 3(1) and provides that AGREEING TO DO, or ARRANGING the payment or collection of interest, dividends and principal will be exempt.

Comment

This change brings the arranging of activities covered by the new paragraph (ka) within the scope of the financial services exemption.

Section 4 of the GST Amendment Act 1986 Open Market Value Section 4 of the GST Act 1985

Amendment

This changes the definition of "Open market value" from being exclusive of GST to being inclusive of GST.

Comment

This amendment brings open market value into line with the normal valuation rules contained in the GST Act, in that open market value is tax inclusive. This change is only of technical importance.

Consequential amendments have been made as follows:

Section of Amendment Act Section of GST Act
8(1) 10(2)(b)
8(2) 10(3)
8(7) 10(8)

Section 5 of the GST Amendment Act 1986 Meaning of "Supply" Section 5 of the GST Act 1985

Section 5(1) Transport Licensing Fees

Amendment

This inserts a new section 5(6A) in the GST Act. This section deems any registration fee or annual licence fee paid pursuant to sections 7(3) or 10(2) of the Transport (Vehicle and Driver Registration and Licensing) Act 1986 to be consideration for a supply of services by the Post Office in the course or furtherance of a taxable activity (and hence subject to GST).

Comment

This new subsection explicitly makes the Motor Vehicle Registration and Licence fees chargeable with GST to eliminate any doubt or confusion which may have surrounded them. The Post Office will account for the GST on the fee except for that part of the fee which relates to the Accident Compensation Levy (accounted for by the ACC).

Section 5(1) Road User Charges

Amendment

This inserts a new section 5(6B) in the GST Act. This section deems any Road User Charge paid on or after 1 December 1986 pursuant to section 9 of the Road User Charges Act 1977 to be a consideration for a supply of services by the National Roads Fund in the course or furtherance of a taxable activity.

Comment

This new subsection makes the Road User Charge liable for GST if it is paid on or after 1 December 1986. The time of that supply is when the charge is paid to the National Roads Fund pursuant to section 22(1) of the Road User Charges Act 1977. Until the 1st of December 1986, the Road User Charge is not subject to tax and is zero-rated when received by the National Roads Fund (refer to the commentaries on section 9(8) and 9(9) of the Amendment Act).

Section 5(2) Rates

Amendment

This repeals the old subsection 5(7) of the GST Act and substitutes a new subsection. The new subsection ensures that while rates remain taxable, repayments of advances in the form of rates are not taxable unless they are paid in respect of goods and services supplied by the Local Authority itself.

Comment

A Local Authority may advance funds to a ratepayer to enable goods and services to be acquired from a third party or to pay for the supply of the goods and services by the Local Authority. Repayments of these advances are deemed to be rates. Where a Local Authority itself supplies the goods and services, the deemed rate is not a repayment of an advance but a payment for the supply of goods and services and this should be subject to GST. However, where the advance is to enable goods and services to be acquired from a third party, the deemed rate is simply a repayment of an advance and is not subject to GST.

Section 5(3) Postage Stamps used as Consideration

Amendment

This inserts a new subsection (11A) in Section 5 of the GST Act, which provides that where postage stamps are used in conjunction with postal notes by a registered person as consideration for a taxable supply of goods and services, that registered person is deemed to make a taxable supply for a consideration equal to the purchase price of those stamps. The supply is deemed to take place at the time the stamps are used.

Comment

Potentially, registered persons who purchase stamps from the Post Office (and obtain a one-eleventh input tax credit) may then use those stamps to purchase goods and services by attaching them to standard denomination postal notes to make the note up to the purchase price of the goods. In this way, the registered person could obtain a second deduction in respect of the stamps. The amendment, which deems a supply to occur equal to the value of the postage stamps, will effectively remove this potential avenue of avoidance.

Section 5(4) Indemnity Payments

Amendment

This deems the time of supply in relation to supplies deemed to be made under section 5(13) of the GST Act.

Comment

Section 5(13) of the GST Act deemed a supply to occur where a registered person received an indemnity payment from an insurer. No "time of supply" (for the purposes of accounting for the tax) was specified in respect of such receipts. Consistent with the time when the insurer may claim a deduction in respect of such payments, such supplies are deemed to occur at the time any payment is received by the insured.

Section 5(5) Indemnity Payments

Amendment

This further amends section 5(13) of the GST Act by providing that insurance proceeds received by a registered person shall not be consideration for a supply, where the proceeds relate to a contract of insurance that is not a supply charged with tax pursuant to section 8(1) of the GST Act.

Comment

The legislation required registered persons to treat an insurance receipt as a tax-inclusive consideration for a supply. This was to balance the effect of giving insurers a deduction of the tax fraction of indemnity payments made. However, where a payment is made under a contract of insurance that is not a supply charged with tax under section 8(1) of the GST Act (ie, zero-rated, exempt, or not taxable) there is no need to recover tax from the insured.

The amendment therefore removes the requirement for registered persons to account for GST on indemnity or insurance payments made to them when such payments are received under an insurance contract that is not chargeable with tax under section 8(1) of the Act. This amendment covers indemnity payments received under contracts of insurance for travel, marine cargo and life insurance and also those where the insurer is not a registered person.

Section 5(6) Refunds of Excise Duty

Amendment

This inserts a new subsection 5(13A) which provides that a refund of excise duty received by a registered person from the National Roads Fund shall be deemed to be consideration received for a supply of services by that registered person in the course of a taxable activity.

Comment

Road users licenced under the Road User Charges Act may claim a refund of the National Road Fund portion of excises paid on the purchase of motor spirits, CNG and LPG. As GST will be paid when these fuels are purchased, the National Roads Fund will need to pay a tax-inclusive refund to the road user. The amendment in section 17(11) of the Amendment Act will allow the fund to claim a one-eleventh credit of any refund paid out. This amendment merely ensures that where the recipient of that refund is registered, GST will be paid on any refund received.

Section 6 of the GST Amendment Act 1986 Taxable Activity Section 6 of the GST Act 1985

Amendment

This clarifies the meaning of the term "taxable activity" to ensure that the general definition has precedence over certain specialised subsidiary provisions.

Comment

It was suggested that supplies made through public authorities as agents would escape the terms of section 6 in certain cases since they would not be supplied by the public authority itself. This was because section 6(1)(b) appeared to have the same status as the general definition in paragraph (a).

The amendment makes it clear that paragraph (a) has precedence and that supplies made, for example by Ministers of the Crown in their official capacity, such as the issue of statutory licences, are still taxable if the general test is met.

Section 7 of the GST Amendment Act 1986 Time of Supply Section 9 of the GST Act 1985

Section 7(1) Racing Bets

Amendment

The amendment to section 9(2)(d) ensures that there is consistency with sections 5(8) and 10(12) of the GST Act in respect of the time that racing clubs, the Racing Authority, and the TAB should account for tax on their activities.

Comment

Some doubt existed as to the extent of application of the time of supply provision for amounts dealt with under the Racing Act. The amendment is designed to clarify this and to be worded consistently with provisions of sections 5(8) and 10(12) of the GST Act.

Section 7(2) Periodic supplies

Amendment

The amendment to section 9(3)(a) ensures that statutory charges for services payable on a periodic or instalment basis, are accounted for in the same manner as similar charges made pursuant to a contract.

Comment

Section 9(3)(a), which dealt with periodic supplies of services, previously referred only to services supplied pursuant to "agreements". This amendment ensures that statutory charges for services (such as royalties) payable in instalments will be accounted for on the same basis as similar contractual charges, ie when payment is due or received, whichever is earlier.

Section 7(3) Successive Supplies of Goods

Amendment

Section 7(3) of the Amendment Act inserts a new paragraph (aa) to 9(3) of the GST Act in place of subsections 9(4) and 9(5). (Refer also to section 7(5) of the Amendment Act).

The new paragraph provides that the time of supply shall be the earlier of the date when any payment is due, is received, or in respect of which any invoice is issued for:

  1. goods which are supplied progressively or periodically and the consideration for that supply is paid in instalments relative to that progressive or periodic supply: or
  2. goods and services supplied in the construction, major reconstruction, extension or manufacture of a building or any civil engineering work and payments for that supply become due periodically as a result of the construction, major reconstruction, extension or manufacture of those goods and are in relation to the progressive nature of that work.

Comment

The Act contains both general and specific rules for determining when the tax on any supply of goods or services is to be accounted for by a supplier and when the recipient may claim a deduction of input tax. The general rule is that a supply is deemed to take place at the earlier of the issuing of an invoice or the receipt of any payment, regardless of whether the supply has been physically completed, eg, goods have been delivered.

Section 2 of the GST Act defines the term "invoice" widely as "a document notifying an obligation to make payment". In terms of the legislation, a written contract is usually an invoice and is sufficient to trigger the time of supply rules.

There were a number of areas in which the time of supply rules were operating to some extent at variance with normal commercial practice. More importantly, there were cases in which it would have been difficult for registered persons to comply, since the ultimate value of supply was unlikely to be known at the time of supply. Chief among these were:

  1. the building industry, which normally operates on the basis of periodic progress claims;
  2. other progressive supplies such as the supply of raw materials;
  3. in a more general context, all supplies involving delayed performance.

In each case, where a deposit was paid or an invoice was issued the whole of the GST on the supply would have been brought to account at once.

There are a number of exceptions to the general rule to deal with situations such as layby sales, hire purchase agreements and certain building contract variations.

The amending legislation now also deems a separate supply to occur in respect of contracts which provide for the periodic or progressive supply of goods and which also provide for progress payments related directly to the degree of performance of the contract.

Section 7(4) Hire Purchase Agreements

Amendments to Section 9(3)(b) and 9(3)(c)(1) of the GST Act

  1. Section 7(4)(a) of the Amendment Act ensures that services supplied under a hire purchase agreement are treated in the same manner as the goods supplied under that agreement.

Comment

It was arguable that one time of supply rule applied to goods sold on hire purchase while other rules applied to other supplies made under an agreement, eg insurance. This meant that the tax on the goods would be accounted for at the time of the signing of the agreement, whilst services supplied under an agreement (eg insurance) would have needed to have been accounted for progressively, over the period of the agreement. This amendment ensures that all supplies are accounted for at the time of the agreement.

Amendment

  1. Section 7(4)(b) of the Amendment Act ensures that those agreements under which property passes or will (expressly) pass are excluded from the definition of "agreement to hire" in section 9(3)(c) of the GST Act.

Comment

The question had arisen as to whether section 9(3)(c)(i) only covered agreements where property definitely passed. The scheme of the Act contemplates that where property in goods passes to a purchaser, the time of supply will be at the earlier of payment or invoicing. This is achieved specifically in relation to hire purchase sales by section 9(3)(b) of the Act whereby the time of supply is deemed to be when the agreement is entered into. The purpose of section 9(3)(c)(i) is to ensure similar treatment for other types of conditional sales where property will eventually definitely pass consequent upon the performance of certain conditions by the purchaser.

Section 9(3)(c)(i) now excludes from the definition of "agreement to hire" agreements where property definitely passes to the bailee and agreements where it is expressly contemplated that property will pass to the bailee. Contracts which merely provide an option to purchase will still constitute agreements to hire.

Section 7(5) Building Retentions

Amendment

Section 7(5) of the Amendment Act repeals sections 9(4) and 9(5) of the GST Act.

Comment

This amendment is consequential to the new section 9(3)(aa), inserted by section 7(3) of the Amendment Act, which supersedes the old subsections 9(4) and 9(5) of the GST Act.

Section 8 of the GST Amendment Act 1986 Value of Supply of Goods and Services Section 10 of the GST Act 1985

Sections 8(1), 8(2) and 8(7) Consequential Amendments

Amendment

These are amendments to subsections 10(2)(b), 10(3) and 10(8) of the GST Act so as to bring the open market value into line with the new definition introduced by section 4 of the Amendment Act.

Comment

These amendments are consequential to the amendment of the definition of "open market value". These and other consequential amendments ensure a consistency of treatment of the term "open market value" throughout the principal Act.

Section 8(3) Supplies to Associated Persons

Amendment

This amends section 10(3) of the GST Act to ensure that when a supply is made to an employee who is also an associated person of the supplier, no other liability to GST will arise if FBT is payable in respect of that supply.

Comment

The Act deems a supply to occur at open market value when made to a non-registered person who is an associated person of the supplier. Where that person is also an employee and the supply is one to which FBT applies, the Act potentially imposed GST twice on that supply. This amendment ensures that in such a position GST will only be imposed in relation to the FBT value of that supply and not also on the open market value.

Section 8(4) Exported Secondhand Goods

Amendment

This repeals the old section 10(4) and substitutes a new subsection. The new subsection contains the following provisions:

  1. Where secondhand goods acquired from non-registered persons are exported they are not zero-rated. The value of the supply is deemed to be the purchase price of those goods to the supplier.

Comment

The only change from the previous provision is the substitution of the expression "purchase price" for "the cost of those goods". This change is explained in the comments on the second proviso to this subsection.

  1. The FIRST PROVISO is a consequential amendment required by the amending of the proviso to section 11(1) (refer to commentary on section 9(4) of the Amendment Act). It provides that where the secondhand goods were acquired from an associated person and that person has made a deduction for input tax in respect of those goods, the consideration in money is deemed to be the greater of the purchase price of the goods to the supplier or the purchase price to that other associated person.

Comment

The proviso ensures that the full input tax credit given in respect of the purchase of secondhand goods is recovered on the subsequent exportation of those goods in situations where the goods are purchased from an associated person. A full commentary is contained in the discussion on section 9(4) of the Amendment Act.

  1. The SECOND PROVISO makes it explicit that exported secondhand goods are taxed on the basis of cost INCLUDING GST.

Comment

When secondhand goods purchased from non-registered persons are exported, GST is levied to recover the input tax deduction allowed when those goods were purchased.

In order to ensure the desired treatment it is necessary to make explicit that the cost of these goods is not reduced by the input tax deduction received on purchase.

Section 8(5) Credit Contracts

Amendment

This amends section 10(5) of the GST Act to ensure that any taxable supply made under a credit contract is taxed on the basis of the cash price whether or not the Credit Contracts Act requires explicit disclosure of that cash price.

Comment

Section 10(5) provided that a taxable supply of goods and services made under a credit contract was valued at the "cash price" disclosed in the contract. Although all supplies made under a credit contract have a cash price (as defined in the Credit Contract Act) disclosure is not required in all cases. The amendment ensures that this valuation is applied to all supplies made under a credit contract whether or not disclosure of the cash price is required. It includes incidental supplies, such as insurance of the goods.

Section 8(6) Long-Term Accommodation

Amendment

This repeals section 10(6) of the GST Act and substitutes a new subsection.

The reworded subsection provides that where a supply of goods and services consists of the supply of domestic goods and services in a commercial dwelling, the consideration for that part of the supply of domestic goods and services in excess of 4 weeks is reduced to 60% of the tax exclusive amount which would otherwise have been attributable to that supply.

The proviso ensures that where the commercial dwelling is a residential establishment, (as defined in section 2 of the GST Act, as inserted by section 2(9) of the Amendment Act) and it has been agreed by the supplier and recipient that the supply shall be for a period of or in excess of 4 weeks, the consideration attributable to that supply of domestic goods and services shall be deemed to be 60% of the tax exclusive amount which would otherwise have been attributable to that supply FROM THE COMMENCEMENT OF THAT SUPPLY.

Comment

The new subsection increases the proportion of the consideration attributable to domestic goods and services which must be charged with GST from a minimum of 20% to 60%. There is still a need to make an apportionment of the consideration attributable to goods and services other than domestic goods and services, eg, meals.

The word "value" is replaced with the word "consideration" to provide consistency with the rest of the Act.

The effect of this amendment is that where an individual stays longer than 4 weeks in a "commercial dwelling", GST is chargeable on only 60% of the basic tax exclusive room rate (where that room rate is for the supply of domestic goods and services). GST is still fully chargeable on other goods and services supplied, eg toll calls, laundry, meals.

The effect of the PROVISO is to allow residential establishments (ie those commercial dwellings which "specialise" in long term accommodation) to charge GST on only 60% of the tax exclusive consideration attributable to domestic goods and services from the first day of any stay, where that stay or the aggregate of those stays will exceed 4 weeks.

Section 8(7) Consequential Amendment to Section 10(8) of the GST Act

Comment

For comments on section 8(7) of the Amendment Act, refer to commentary on section 8(1).

Section 8(8) Games of Chance

Amendment

This removes the existing reference in section 10(14) to the "sale of tickets".

Comment

Section 10(14) establishes the value of the supply that occurs when a lottery or other game of chance is operated. This value is calculated by reducing the total proceeds by the amount of cash prizes.

The section referred only to proceeds from the sale of tickets. This restriction was inappropriate given that not all games of chance involved the sale of tickets.

Section 8(9) Consequential Amendment

Amendment

This removes the reference to "ticket" from section 10(15).

Comment

This amendment is consequential to the amendment to section 10(14) of the GST Act by section 8(8) of the Amendment Act.

Section 9 of the GST Amenmdment Act 1986 Zero-Rating Section 11 of the GST Act 1985

Section 9(1) Exported Goods

Amendment

This inserts a new subparagraph, (ia), after paragraph 11(1)(a) of the GST Act giving the Commissioner a discretion to zero-rate a supply of goods that has not been entered for export where the Commissioner is otherwise satisfied that exportation has taken place.

Comment

Not all goods exported from New Zealand are required to be "entered for export". The Customs Act does not require goods with a value of up to $100 to be entered, therefore it would be rare for the exporter of such low value items to hold an export entry as evidence to sustain the zero-rating of that supply. Further, no export entry is granted in respect of ships stores (ie, consumable items such as vegetables).

The new subparagraph is designed to allow the zero-rating of such exports where alternative evidence of exportation is provided. This would generally be in the form of a bill of lading, air consignment note, or airway bill.

Section 9(2) Time Limit for Exportation

Amendment

This amends the proviso to section 11(1)(a) of the GST Act by giving the Commissioner a discretion to extend the 28 day period in which goods must be exported to qualify for zero-rating under section 11(1)(a)(ii).

Comment

The Commissioner's discretion is required to cover situations where it will not be possible for the goods to be exported within 28 days of the time of supply. An example would be magazines supplied to an overseas subscriber. The exportation of all the magazines supplied under the subscription is unlikely to occur within 28 days of the time of supply. The discretion cannot be applied in a situation where the exportation occurs after 28 days by choice of the supplier or recipient.

Section 9(3) Zero-rating of "Fine Metal"

Amendments

  1. This inserts a new paragraph 11(1)(ca) to the GST Act, which provides for the zero-rating of "fine metal", where it is the first supply of that "fine metal", and the supply is made by a registered person, (who is a "refiner of fine metal") to a "dealer in fine metal" for use as an investment item.

Comment

Refer to the comment on section 2(9) of the Amendment Act.

  1. A proviso is also inserted to cover the instance where a registered person is a REFINER AND DEALER in fine metal. In such a case, the "new fine metal" is deemed to have been supplied to a "dealer in fine metal" immediately prior to the making of an exempt supply of that "new fine metal"

Comment

This proviso prevents the disadvantaging of a refiner who is also a dealer. All supplies of "fine metal" are exempt, except those between a refiner and dealer. These supplies are zero-rated, thus allowing an input tax deduction. Where a refiner is also a dealer, there is a deemed supply to a dealer, thus allowing the input tax deduction.

Section 9(4) Exported Secondhand Goods and Re-imported Goods

Amendments

  1. This repeals the proviso to section 11(1) of the GST Act and substitutes a new proviso paragraph (d). This proviso extends the existing provision denying zero-rating status to exported secondhand goods to cover situations where those goods have been purchased by the exporter from an associated person. This proviso will apply where the associated person had received a one-eleventh deduction on purchasing those goods secondhand from a non-registered person.

Comment

When a registered person purchases secondhand goods from a non-registered person, a deduction is allowed against output tax of one-eleventh of the purchase price. When such goods are subsequently exported in the course of a supply, that supply is not zero-rated. Such supplies are taxed on the basis of purchase price in order to recover the GST input credit previously allowed.

The GST Act only denied zero-rating to goods purchased secondhand by the exporter from a NON-REGISTERED person. Zero-rating was still available where the registered person purchased the goods off another REGISTERED person, even though those goods may have originally been purchased secondhand from a non-registered individual. In order to defeat the intended application of that provision, the registered person who exported the goods merely had to get an associated registered person to intercede.

Accordingly the limitation on the availability of zero-rating is extended to cover situations where the goods have been purchased by the exporter from an ASSOCIATED PERSON who had gained a deduction by purchasing secondhand goods from a non-registered person.

  1. Paragraph (e) This is an amendment consequent to the amendment in section 10(6) of the Amendment Act. It prevents the zero-rating of those goods which have been or will be exported and which also have been or will be re-imported by the supplier.

Comment

Full discussion is contained in the commentary to section 10(6).

Section 9(5) International Transportation

Amendments This repeals and substitutes section 11(2)(a). The new section changes the provisions in respect of the international transportation of passengers and of goods and zero-rates both Marine Cargo Insurance relating to the exportation or importation of goods, and Travel Insurance relating to travel to a place outside New Zealand.

  1. SERVICES WILL BE ZERO-RATED WHERE THEY ARE SUPPLIED DIRECTLY IN THE INTERNATIONAL TRANSPORTATION OF GOODS. This will also include any internal transport, to the extent that the transportation is provided as part of those services (or the arranging of such transportation).

Comment

The amendment eliminates certain problems associated with the zero-rating of services involving the transportation of exported or imported goods.

When a good is exported from New Zealand, domestic transportation costs may be incurred in getting the goods from the place of production to the port of departure. If these costs are incurred by the domestic exporter (who is registered for GST purposes), any GST that is included in such charges will be able to be claimed as a deduction of input tax by the exporter. In this case, GST will have no direct impact on the cost of those goods to the non-resident importer.

In contrast, if it is the non-resident importer of those goods that incurs the costs of the transportation within New Zealand (almost invariably through a New Zealand shipping agent), the GST component of such transportation charges will not be refunded and will, therefore, increase the cost of those goods to the non-resident importer.

A similar situation exists in respect of the importation of goods to New Zealand; if the resident importer incurs the domestic transport costs, the GST component is refundable and the cost of the imported goods is unaffected; if, however, the non-resident exporter of those goods incurs the costs of transportation, the GST component is likely to increase the cost of those goods.

The GST Act previously zero-rated only the international transportation of goods from or to New Zealand any transportation within New Zealand being liable for GST at 10%. New Zealand-based international transporters would have been required to include GST in their charges to the extent that the charges related to transportation that occurred within New Zealand. Non-resident transporters in contrast, would not have included any GST component relating to transportation that occurred in New Zealand as they generally would not have been (and would not have been required to be) registered for GST purposes.

As a consequence, a domestic exporter wanting goods transported from some place within New Zealand to the port of departure and then on to an overseas destination would have faced a totally GST-exclusive price from a non-resident transporter. In contrast that same exporter would have faced a price that includes some GST component from a resident transporter. While both of these prices would be the same to the domestic exporter in net terms (ie, the GST component currently being refundable), there would have been a cash flow cost to the exporter associated with the GST-inclusive charge made by the domestic transporter.

To help alleviate the above problems the amendment zero-rates the domestic portion of the international transportation of imported or exported goods.

It should be noted that any such domestic transportation must be provided AS PART OF the international transportation of those goods.

  1. IN RESPECT OF PASSENGERS, SERVICES WILL BE ZERO-RATED WHERE THEY ARE SUPPLIED DIRECTLY WITH INTERNATIONAL TRANSPORTATION, (or arranging thereof) including any domestic portion of international travel, to the extent that the transportation is provided as part of those services by the same supplier.

Comment

This amendment has the effect that the traveller who joins an international flight in Wellington and flying on to Auckland before departing overseas, has the entire trip zero-rated, including the domestic portion of the flight. The Wellington-Auckland flight is deemed to be part of the international flight.

The traveller who separately books and pays for a domestic flight to Auckland before catching an international flight will have to pay GST on the domestic flight.

  1. MARINE CARGO INSURANCE, and the arranging thereof, relating to the exportation or importation of goods and TRAVEL INSURANCE, and the arranging thereof, relating to travel to a place outside New Zealand are to be zero-rated.

Comment

The GST Act previously zero-rated only that portion of Marine Cargo Insurance that related to moveable personal property situated outside New Zealand during the period of cover. Travel insurance was not zero-rated.

It was decided that Marine Cargo Insurance relating to exported or imported goods and Travel Insurance relating to travel involving a destination outside New Zealand should be zero-rated in total. This treatment is consistent with the intended application of GST to consumption that occurs only in New Zealand.

Section 9(6) Services in Connection with Moveable Personal Property

Amendment

This substitutes the time of performance for the time of supply as the test for when the goods must be outside New Zealand in order to qualify as a supply of services directly in connection with those goods zero-rated under section 11(2)(c)(i) of the GST Act.

Comment

The time when services are supplied is, for the purposes of the Act (other than for the transitional provisions), determined in accordance with the "time of supply" rules. These determine the time when a supply takes place as generally being the earlier of the issue of an invoice or the making of any payment. Special rules apply to many supplies such as services supplied under an agreement that provides for periodic payment.

While these time of supply rules are specifically designed to enable supplies to be accounted for on a practical basis, they are not appropriate in the context of zero-rating provisions which require a test based on the time of the actual physical performance of services. The amendment corrects the situation for services supplied directly in connection with goods situated outside New Zealand at the time these services are performed and brings the relevant time in line with section 11(2)(e).

Section 9(7) Services Supplied to Non-Residents

Amendment

This repeals the old paragraph 11(2)(e) and substitutes a new paragraph which specifically restricts the application of zero-rating to a supply of services to a non-resident where the benefit of those services will be enjoyed overseas.

Comment

The GST Act previously zero-rated any services that were supplied for and to any non-resident who was not in New Zealand at the time the services were performed. This provision was intended to zero-rate services not otherwise zero-rated where the benefit of those services was going to be enjoyed overseas.

The amendment restricts the application of the provision by specifically excluding services supplied directly in connection with land or goods in New Zealand and restraint of trade agreements to the extent that that trade would have been conducted in New Zealand.

This change still enables the zero-rating of a wide range of services such as financial services, advisory services and services which are directly in connection with intellectual property rights which are for use in New Zealand. The commission charged by agents arranging the international transportation of goods, previously zero-rated under this provision, will not be zero-rated under the provision in its amended form if the goods are situated in New Zealand. However, the zero-rating of such commissions will be achieved by the amendment to section 11(2)(a) contained in section 9(5) of the Amendment Act.

Section 9(8) National Roads Fund

Amendment

This adds a new subsection (3) to section 11 to zero-rate money received by the National Roads Fund from excise duty on motor spirits duty, CNG, and LPG and also road user charges.

Comment

The revenue from the excise duty which replaced the sales tax on motor spirits duty, CNG, LPG and Road User Charges is "tied" either wholly or partly to fund the National Roads Fund (NRF).

Although this duty will not be subject to GST when it is imposed, the GST Act requires the NRF (via the Ministry of Works) to account for GST when the revenues from these taxes are received. Assuming that there is no change in the rates of the duty, the NRF may have as the Act stood, suffered a reduction in real income. The amendment ensures that this reduction will not occur.

Because of the provisions of section 9(9) of the Amendment Act this zero-rating of National Roads Fund revenue from road user charges only applies until 1 December 1986.

Section 9(9) National Roads Fund

Amendment

This repeals the new section 11(3) (as added by section 9(8) of the Amendment Act) on 1 December 1986 and provides a substituted subsection which allows for the zero-rating of any money received by the National Roads Fund from excise duty on motor spirits, CNG and LPG only, where the consideration for that supply is credited to that Fund.

Comment

This amendment is consequential to the taxation of Road User Charges paid on or after 1 December 1986 as specified in the new section 5(6B) of the Act (refer commentary on section 5(1) of the Amendment Act). As this component of National Roads Fund revenue will be subject to tax, there is no need to zero-rate the revenue in the hands of the Fund. Fund revenue from excise duty on motor spirits, CNG and LPG will still be zero-rated.

Section 9(10) Local Authority Petroleum Tax

Amendment

Inserted is a new subsection (4) to section 11 of the GST Act. This provides that a supply will be zero-rated where the supplier is a territorial authority, a regional or united council, and the consideration for that supply is proceeds from the local authorities petroleum tax paid to that supplier.

Comment

This change ensures a consistency of treatment between the revenues of the National Roads Fund (not including Road User Charges) and similar revenues of local authorities.

Section 10 of the GST Amendment Act 1986 GST on Imports Section 12 of the GST Act 1985

Section 10(1) Imported Exempt Goods

Amendment

This amendment excludes exempt goods from being subject to GST on importation.

Comment

The GST Act previously required the imposition of GST on all imported goods. With the exemption of "fine metal" (refer commentary on section 2(9) of the Amendment Act) it is necessary to ensure that such exempt goods are not subject to GST on importation.

Section 10(2) Goods Entered into a "Licensed Manufacturing Area"

Amendment

This inserts a new paragraph (aa) to section 12(1) of the GST Act which provides for the imposition of GST by the Customs Department when imported goods are "entered into a licenced manufacturing area" on or after the 1st of October 1986.

Comment

The GST Act provided for the imposition of GST when goods were imported, ie, technically when they were "entered for home consumption". Consequent changes to the sales tax regime, (ie its replacement with a limited range of excises) the Customs Department are creating another importation point, ie, when goods are "entered into a licenced manufacturing area". This will apply to goods imported for the purpose of producing beer, spirits, tobacco, and fuels. A consequential amendment was required to the GST Act to ensure that GST is also imposed on imported goods that are "entered into a licenced manufacturing area" rather than "entered for home consumption".

Section 10(3) Delivery to a "Licensed Manufacturing Area"

Amendment

This is consequential to the amendment contained in section 10(2). It amends section 12(1)(b) of the GST Act.

Comment

Refer to the comment on section 10(2).

Section 10(4) Valuation of Imports

Amendment

This repeals paragraph (d) of section 12(2).

Comment

Section 12(2) of the GST Act contained the rules for valuing goods imported into New Zealand for GST purposes. The value previously included all fees or levies paid or payable at the time goods were imported into New Zealand.

Specifically, paragraph (d) ensured that the Liquid Fuels Trust Board Levy, the Alcoholic Liquor Advisory Council Levy and the Heavy Engineering Research Authority Levy were included in the value of imported goods.

However, as these levies will be subject to GST in their own right (as consideration for a supply of goods and services supplied by the respective collecting body), their specific inclusion in the GST valuation of imported goods is redundant. Accordingly the amendment repealed section 12(2)(d).

Section 10(5) Consequential Amendments

Amendment

This removes or replaces references in section 12(4)(a) of the GST Act to various sections of the Customs Act 1966. The amendments ensure that the references to the Customs Act 1966 contained in the GST Act are consistent with changes to the Customs Act arising from the introduction of the new excise regime from 1 October 1986.

Comment

The GST Act provides got the imposition of GST by the Customs Department on goods reported to New Zealand. The Act makes specific reference to numerous provisions of the Customs Act 1966 to ensure that the collection, payment, and enforcement of GST levied by Customs is consistent with those applying to other charges payable on importation. Due to the changes in the Customs Act made as a consequence of the new excise regime some of the references to the Customs Act have been altered accordingly.

Section 10(6) Export and Subsequent Re-importation of Goods

Amendment

This inserts a new proviso to section 12(4) of the GST Act referring to section 164 of the Customs Act 1966. The proviso ensures that the section only applies for GST purposes in cases where goods are re-imported by a person (other than in the course of a taxable activity) which have been owned and used by the importer overseas. Consequential to this, an amendment has been made to section 11(1) of the GST Act by section 9(4) of the Amendment Act to restrict the zero-rating of exported goods to those which are not subsequently re-imported by the supplier.

Comment

Many provisions of the Customs Act 1966 have effect in relation to the imposition of GST on imported goods. One of these, section 164, would have had the effect of allowing goods to be reimported free of GST. In circumstances where this provision could have been applied by the Customs Department, the situation could have arisen where goods were sold to a New Zealand consumer, exported by the supplier, and the supply zero-rated. When those goods were then re-imported by either the supplier or purchaser, no GST would have been payable. The New Zealand consumer therefore would have achieved the purchase free of GST, merely at the cost of the transportation charge. To avoid such a situation arising, the amendment restricts the application of section 164 of the Customs Act for GST purposes to goods re-imported by a person (other than in the course of a taxable activity) where the goods have been owned and used by the importer overseas.

Section 11 of the GST Amendment Act 1986 GST On Goods Liable to Excise Duty Section 13 of The GST Act 1985

Amendment

This replaces references in section 13 of the GST Act to section 134 of the Customs Act 1966 with reference to Part IV A (of the same Act).

Comment

This change is consequential to the new excise duty regime.

Section 12 of the GST Amendment Act 1986 Exempt Supplies Section 14 of the GST Act 1985

Section 12(1) Exemption of Ground Rent

Amendment

This includes as an exempt supply ground rent for land on which a dwelling is erected and used principally for accommodation.

Comment

This is extending the exemption of rental of domestic housing to land which is used principally for domestic residential purposes.

Section 12(2) Sale of Residential Rental Property

Amendment

This restricts the exemption in section 14(d) to the outright sale "of any dwelling" which has been used exclusively for residential rental purposes for at least five years prior to sale.

Comment

Section 14(d) is intended to exempt the sale of any dwelling which has been used exclusively for residential rental purposes for at least 5 years prior to sale. The section itself, however, referred to any supply of that dwelling which encompassed not only the outright sale but also other forms of supply such as a lease. Clearly, such a wide exemption was not intended and the section was amended to restrict the exemption only to supplies which are the outright sale of the dwelling.

Section 12(3) Exemption of "Fine Metals"

Amendment

This provides an exemption for the supply of "fine metal" which is not zero-rated under section 11(1) of the GST Act (as amended by section 9(3) of the Amendment Act).

Comment

Refer to the comment on section 2(9) of the Amendment Act.

Section 13 of the GST Amendment Act 1986 Taxable Periods Section 15 of the GST Act 1985

Amendments This repeals section 15 and substitutes a new section. The substantive changes are:

  1. Allowing registered persons with one or six-monthly return periods to substitute a day up to seven days either side of the last day of the month, as the date upon which the return period ends. This facility is contained in a new subsection (4) which replaces the paragraph (d) of the old subsection (1).
  2. Allowing registered persons with one or six-monthly return periods to alter their return period, eg from one-monthly to six-monthly. This facility is contained in subsection (5)(b) which replaces subsection 4(b).

Comment

Both of the above amendments give registered persons using one and six-monthly return periods the same rights as are given to those using a two-monthly return period.

Section 14 of the GST Amendment Act 1986 Taxable Period Returns Section 16 of the GST Act 1985

Section 14(1) Concession for Non-Profits Bodies

Amendment

This amendment more explicitly allows the Commissioner to extend the time for furnishing of returns by non-profit bodies.

Comment

This concession will apply where there are special circumstances, such as where a non-profit body has a large number of branches and it would be extremely difficult to collect the necessary information within the required time. Instructions on the application of this discretion will be issued shortly.

Section 14(2) Extension of Time for Furnishing Returns

Amendment

This allows returns for taxable periods ending on 30 November to be furnished and payments made on or before 15 January each year rather than 1 January.

Comment

The Act provides that GST returns are to be furnished on or before the first day of the second month after the taxable period ends. Therefore, returns for taxable periods ending on 30 November would normally be required to be furnished on or before 1 January.

Due to the Christmas/New Year holidays it will be difficult for registered persons to have this return furnished by 1 January.

The Act already recognised that similar problems would exist for the Department and accordingly grants a concession from the payment of interest on GST refunds over the Christmas/New Year holiday period, from 25 December to 15 January inclusive. The amendment to the due date for the return and payment ensures consistency.

Section 15 of the GST Amendment Act 1986 Special Returns Section 17 of the GST Act 1985

Amendment

This amends section 17(1)(a) to ensure that a special return should be in a prescribed form.

Comment

Section 17, which relates to special returns did not require the use of the prescribed form designed for such returns. As that section stood, special return could have been furnished in any form provided the required information was supplied.

Section 16 of the GST Amendment Act 1986 Accounting Basis Section 19 of the GST Act 1985

Section 16(1) Adoption of Payments Basis

Amendment

The amendment to section 19(2)(b) of the GST Act increases the turnover threshold for adopting the payments basis of accounting from $250,000 to $500,000.

Comment

The payments basis of accounting will now be available to ALL registered persons with a turnover of up to $500,000, instead of the previous $250,000 limit.

Section 16(2) Payments Basis for Registered Persons with a Turnover in Excess of $500,000.

Amendment

This changes the word "or" in section 19(2)(c) to "and".

Comment

Section 19(2)(c) now provides that a payments basis of accounting will be approved for certain persons with a turnover in excess of $500,000 where it is appropriate due to the nature, volume AND value of taxable supplies and nature of the accounting system. Previously this enabled a registered person to satisfy only two of these requirements before the approval for a payments basis could be given.

All four of these criteria must be considered in determining eligibility to use the payments basis.

Section 17 of the GST Amendment Act 1986 Calculation of Tax Payable Section 20 of the GST Act 1985

Section 17(1) Time when Tax Invoices Required for Deductions

Amendment

The amendment to section 20(2)(a) of the GST Act explicitly provides that where a supply is made to a registered person, the deduction for input tax shall only be allowed where that registered person holds a tax invoice at the time the return in which the deduction is claimed is furnished.

Comment

The GST Act specifies that a registered person may claim a deduction of input tax in the taxable period during which the supply was made (for a person on the invoice basis, this is generally the earlier of invoicing or payment). The Act further provides that this deduction can only be claimed if the required tax invoice has been issued to the registered person. The Act was not explicit as to whether this invoice had to be obtained by the end of the taxable period or by the time the return is furnished. This amendment will deny the deduction where the required invoice is not held at the time the return is furnished.

Note:

For a registered person using the invoice basis of accounting, the time of supply is the earlier of:

  1. the time an invoice is issued by the supplier; or
  2. the time that payment is received by the supplier.

A tax invoice must show the date on which it was "issued". This means the date it was posted or personally delivered to the recipient.

For both suppliers and recipients using an invoice basis where no prior payment has been made, the issue date on the tax invoice will determine which return period the output and input tax must be accounted for. This is the case even though the tax invoice may in fact be actually received by the recipient in the first few days of the succeeding taxable period.

Section 17(2) Consequential Amendment

Amendment

The amendment adds the word "or" to paragraph (b) of section 20(2).

Comment

This is consequential to the amendment contained in section 17(3) of the Amendment Act.

Section 17(3) Ability to Make Deduction for Secondhand Goods

Amendment

This adds a new paragraph (c) to section 20(2) of the GST Act which ensures that a deduction of input tax on secondhand goods is not denied because a tax invoice is not held, but sufficient records to support such a claim are required.

Comment

Section 20 of the Act denies a deduction of GST in most circumstances where a tax invoice is not held in respect of the purchase. The section operated to deny a deduction where a tax invoice was not held when secondhand goods were purchased from a non-registered person. A tax invoice could not be issued by the non-registered supplier and, as such, the deduction should not have been denied because one was not held. The amendment corrects this anomaly.

Section 17(4) Deduction of GST paid to Customs Department

Amendment

The amendment to section 20(3)(a)(ii) of the GST Act allows a registered person accounting on an invoice basis to claim, at the earlier of the time of invoicing or payment, a deduction of GST collected by the Customs Department on the importation of goods.

Comment

The GST Act previously allowed a deduction for GST collected by the Customs Department on importation only at the time when payment of that GST was made. This was consistent with the method of collection by the Customs Department of duties, etc, ie, GST payable on imports was to be payable on importation. As a result of changes to the method of collection, the duty and GST will in some circumstances be invoiced to the importer. The deduction for the GST will be allowed to a registered person accounting on the invoice basis at the earlier of invoicing or payment.

Section 17(5), 17(7) and 17(8) Accounting for Debit Notes and Credit Notes

Amendment

These subsections amend subsections 20(3)(a) and 20(3)(b) of the GST Act to ensure that any amount of output tax or input tax that results from the issue of a debit note or credit note is accounted for on the same basis that the registered person accounts for GST (ie invoice or payments basis). This is done by inserting new paragraphs 3(a)(iii) and 3(b)(iv). Section 20(3)(c) of the GST Act is consequently redundant and is repealed by section 17(9)(a) of the Amendment Act.

Comment

The GST Act previously required that where a debit note or credit note resulted in output tax or input tax the registered person must account on an invoice basis for those adjustments even where the registered person was on the payments basis for all other purposes. The amendment was required to ensure that the output tax and input tax resulting from the issue/receipt of a debit note or credit note are accounted for consistently with the registered person's accounting basis. Consequential amendments to section 25 of the GST Act were necessary in order to specify that the amounts referred to therein are deemed to be "input tax" (refer to commentary on section 20 of the Amendment Act).

Section 17(6) Consequential Amendment

Amendment

This adds a reference to the new section 9(3)(aa).

Comment

This is consequential to the amendment contained in section 7(3) of the Amendment Act which creates a new section 9(3)(aa).

Section 17(9)(a) Consequential Amendment

Amendment

This repeals paragraph (c) of section 20(3) of the GST Act.

Comment

This is consequential to changes made in section 17(5) and 17(8) of the Amendment Act which effectively supersede the repealed paragraph.

Section 17(9)(b) Input Deduction Allowed for Indemnity Payments made after 1 October 1986

Amendment

This amends section 20(3)(d)(i) to ensure that indemnity payments made on or after 1 October 1986 will qualify for the input tax credit provided for in section 20(3)(d) of the GST Act.

Comment

The GST Act previously allowed an insurer, in respect of a taxable insurance policy, to deduct from output tax a credit of one-eleventh of any amount paid in cash to any insured person under such a policy.

Over the transition, this credit was to be available only in respect of payments made on claims under a taxable policy ie any policy TO THE EXTENT that it covers a period from 1 October 1986 on.

This amendment allows a one-eleventh credit to an insurer for an indemnity payment made after 1 October 1986 which is made in respect of an insurance policy which is not a taxable supply simply by virtue of its termination prior to that date (ie the policy terminated prior to 1 October 1986).

Section 17(10) No Input Tax Deduction for Zero-rated Insurances

Amendment

This amends section 20(3)(d) to ensure that no deduction of input tax is given to an insurance company for a cash indemnity payment in relation to an insurance contract that is zero-rated.

Comment

Where an insurance premium is taxable, a credit will be allowed to the insurer of one-eleventh of any cash indemnity payment made under that policy. This ensures that the insurer is only subject to GST in relation to the value of their services supplied (ie the value added).

The one-eleventh credit for indemnity payments will not be allowed where:

  1. the insured is not registered and non-resident and the policy is zero-rated; or
  2. the payment is made to any person in respect of a supply (not being a taxable supply) physically made to that person outside New Zealand.

Such a credit will not be allowed in respect of policies which are zero-rated (eg marine cargo and travel insurance).

Section 17(11) Input Tax Deduction Allowed for any Refund of Excise Duty Paid out by the National Roads Fund.

Amendment

This inserts a new paragraph (da) in section 20(3) of the GST Act, which allows the National Roads Fund to claim an input tax credit on any refund of excise duty paid out of that Fund on or after 1 October 1986.

Comment

This amendment enables the National Roads Fund to claim a one.-eleventh credit for any payment of a refund of excise on motor spirits, CNG or LPG. These refunds will be paid inclusive of GST. Refer to commentary on section 5(6) Of the Amendment Act.

Section 17(12) Restriction of an Input Tax Credit upon the Purchase of Secondhand Goods Previously Owned by a Registered Person

Amendment

The FIRST NEW PROVISO inserted in section 20(3) of the GST Act prevents the deduction of an input tax credit where secondhand goods are sold by registered persons between 1 July 1986 and 30 September 1986 and are re-purchased between 1 October 1986 and 30 June 1987.

However, the SECOND NEW PROVISO inserted allows the input tax credit if the supply is made in the normal course of the taxable activity carried on by the registered person and the supply is otherwise than for the purpose of enabling an input tax credit to be deducted.

Comment

This section is intended to prevent traders from selling their stock to a non-registered person prior to 30 September 1986 and then re-purchasing it after 1 October 1986. This practice would have enabled the registered person to claim a one-eleventh input tax credit for stock held over this transitional period.

However, this amendment allows an input tax credit where the re-purchase of a chattel is conducted in the normal course of a taxable activity and that the re-purchase is not transacted just for the purpose of enabling an input tax credit to be claimed.

This amendment ensures that registered persons who conduct bona-fide transactions involving re-purchase of chattels (eg repossessions) will be able to claim an input tax credit.

Section 17(13) Consequential Amendment

Amendment

This removes the reference in section 20(4)(b)(1) to section 9(4), and inserts references to sections 9(3)(aa), 25(2)(a) and 25(4) of the GST Act.

Comment

The amendment is consequential to the amendments in sections 7(3) and 17(8).

Section 18 of the GST Amendment Act 1986 Adjustments Section 21 of the GST Act 1985

Section 18(1) Principal Purpose

Amendment

This corrects a drafting error in section 21(1) of the GST Act, which should have referred to the "principal purpose of making taxable supplies" rather than "in the course of a taxable activity".

Comment

This correction ensures consistency of drafting with other parts of the Act (eg the definition of "input tax"). It results in no change to the section's intended effect.

Section 18(2) De-minimis Rule

Amendment

This clarifies the proviso to section 21(1) of the GST Act, in respect of the partially exempt use of goods and services, by ensuring that it is the LESSER OF the stated criteria (ie $48,000 or 5% of turnover) which is relevant, and that they are not cumulative.

Comment

It could have been argued that the rule could have been read as meaning $48,000 PLUS 5 percent of turnover. The amendment makes it clear that these are alternative criteria, and that it is the LESSER OF the two which sets the de-minimis limit.

Section 18(3) One-Off Adjustments for Non-taxable Use

Amendment

This adds a second proviso to section 21(1) of the GST Act which provides an option of a one-off adjustment to apportion between the non-taxable and taxable use of any asset costing under $10,000, rather than a continual adjustment on a taxable period by taxable period basis. This option may be taken up only in the first return period in which the goods were acquired or produced and is to remain binding in relation to the asset concerned.

Comment

Where there is partial non-taxable use of a business asset a deemed supply occurs, the deemed supply occurring in each period of non-taxable use. Where the asset cost is not large this would have resulted in a minimal adjustment to output tax occurring in each return period. In order to reduce the necessity of small, ongoing adjustments, the option is now provided to enable the adjustment to be made in one period only; where the cost of the asset to which the adjustment relates does not exceed $10,000, the cost being tax inclusive. The adjustment will be based on the estimated taxable/non-taxable use over the life of the asset. In general, estimates based on expected usage over the following twelve months will be accepted.

Section 18(4) De-minimis Rule for Payments Based Taxpayers

Amendment

This adds a new subsection, (1A) to section 21(1) of the GST Act which ensures that the de-minimis rule (dealing with minor exempt supplies) applies appropriately to persons accounting on the payments basis. This is achieved by requiring registered persons who account for GST on a payments basis to estimate the value of exempt supplies in any 12 month period using the payments basis of accounting.

Comment

Previously the rule required a payments based registered person to estimate his next 12 months exempt supplies using the normal time of supply rules (ie generally the earlier of invoice or payment). This would have been inappropriate for persons accounting on the payments basis and the amendment allows them to make this estimate using the payments basis only, ie by estimating cash receipts. This is particularly relevant where the estimate is based on historical information.

Section 18(5) Fringe Benefits Provided in the Course of Exempt Activities

Amendment

This adds a proviso to section 21(3) of the GST Act to provide that to the extent that a fringe benefit is provided in the course of making exempt supplies, that fringe benefit shall not be subject to GST.

Comment

Section 21(3) of the Act deems a supply to occur where fringe benefit tax is payable by a registered person. As the Act stood, that benefit would have been taxable even where it was supplied to an employee who was employed in an exempt activity. As the GST on the inputs to the fringe benefit supply would not have been deductible, taxation of the benefit to which they contributed was clearly unfair. In order to ensure the equitable treatment of such benefits, the amendment provides that fringe benefits are not subject to tax to the extent that they are made in the course of making exempt supplies.

Section 18(6) Use of Private Assets in a Business

Amendment

This has two aims:

  1. to ensure that the partial (but not principal) business use of private or exempt assets will give rise to a corresponding input tax credit, by the removal of the word "principal" from section 21(5).

Comment

The subsection required that taxable use be the "principal" use of the goods and services, whereas it should have been sufficient if such use was partial. The amendment removes the "principal" part of the test.

  1. to ensure that section 21(5) of the GST Act permits partnerships to claim a credit of tax in respect of the use of the private assets of the individual partners, by making reference to the use of the assets of a partner by the partnership.

Comment

Under the Act, only the partnership itself can register, not the individual partners. Where a partner uses his own assets (eg a car) for taxable purposes (those of the partnership), the previous provisions of section 21(5) prevented the partnership obtaining input tax credits respect of the taxable use of that asset. The amendment removes anomaly.

Section 18(7) Adjustments for Taxable Use

Amendment

This adds a new proviso to section 21(5) of the GST Act, which gives the same treatment for the partially taxable use of capital assets costing less than $10,000 as is afforded for the partially non-taxable use of such assets, (refer to the new proviso to section 21(1), added by section 18(3) of the Amendment Act).

Comment

The rationale and operation of the amendment is the same as that described in the commentary to section 18(3) of the Amendment Act.

Section 19 of the GST Amendment Act 1986 Tax Invoices Section 24 of the GST Act 1985

Section 19(1) Reduced Requirements For Tax Invoices

Amendment

This removes the requirement to show an individual serialised invoice number and the address of the supplier on a tax invoice.

Comment

It became apparent that many businesses do not use serialised invoices. Often an alternative is used, such as a customer account number together with the date. The amendment recognises this by removing the requirement for an individual serialised number.

The removal of the requirement to show the supplier's address on a tax invoice will allow registered persons more flexibility. As registered persons are required to show their GST registration number on tax invoices and the Inland Revenue Department has the registered person's address, the requirement to show the supplier's address on a tax invoice has been dispensed with. As it is normal commercial practice for invoices to show the address of the supplier it is anticipated that the removal of formal legislative requirement to show the supplier's address will make little difference to the format of tax invoices.

Section 19(2) Power to Impose Conditions when Waiving Tax Invoice Requirements

Amendment

This amendment to section 24(6) of the GST Act permits the Commissioner, when waiving or modifying the requirements for tax invoices, debit notes, or credit notes to impose conditions for any such waiver or modification.

Comment

It is desirable that the Department have the power to impose alternative requirements (eg certain statements to be included on an invoice) or to restrict the use of such tax invoices or debit notes or credit notes to particular circumstances or over particular periods. The amendment gives effect to this.

Section 19(3) Purchase of Secondhand Goods

Amendment

Section 24(7) of the GST Act is amended to ensure that the provision dealing with record requirements for purchases of secondhand goods refers to NON-TAXABLE SUPPLIES rather than NON-REGISTERED PERSONS. This will ensure that the provision also covers secondhand goods bought from registered persons selling in their private capacity.

Comment

This amendment corrects a drafting error, and makes the wording of the subsection consistent with the definition of "input tax" in section 2 of the GST Act.

Section 19(4) Purchase of Secondhand Goods Record Requirements

Amendment

This adds a proviso to section 24(7) of the GST Act removing the requirement for a registered person purchasing secondhand goods from a non-registered person to keep detailed records where the consideration for the supply is up to $20.

Comment

The new proviso brings the record keeping requirements for registered persons purchasing secondhand goods from non-registered persons into line with the requirements for tax invoices.

Section 19(5) Tax Invoice Requirements in Respect of Part of a Cent

Amendment

This adds a new subsection 24(8) to the GST Act which provides that where the GST component of the price of any supply is shown separately on a tax invoice, and that GST component involves a fraction of a cent, the GST component need only be shown on the tax invoice to the nearest cent. Half-cents and below are to be rounded down.

The GST Act requires the GST component of any taxable supply to be separately identified in a tax invoice -

  1. in all cases where the tax included is not one-eleventh of the consideration for the supply, eg it is subject to the transitional provisions or is a supply of accommodation in a commercial dwelling in excess of 4 weeks.
  2. in any case where the tax included is one-eleventh of the consideration, but where there is no statement on the tax invoice otherwise indicating the inclusion of GST.

In both of these circumstances the GST component of the consideration for the supply may not be able to be exactly expressed in dollars and cents. Fractions of cents will occur in many cases.

The GST Act previously contained no instruction as to how such fractions should be shown and there was no discretion for the Commissioner to make an administrative decision. For the purposes of certainty regarding the invoice requirements, the Act has been amended to specify the rounding of such fractions to the nearest cent. Half-cents and below are to be rounded down.

Section 20 of the GST Amendment Act 1986 Credit Notes and Debit Notes Section 25 of the GST Act 1985

Section 20(1) Fundamental Variation or Alteration of a Supply

Amendment

This inserts a new paragraph (aa) in section 25(1) of the GST Act. The new paragraph adds a new circumstance where the consideration for a supply may be altered which could lead to incorrect amounts of tax being accounted for. This circumstance being where the nature of the supply has been fundamentally varied or altered.

Comment

Where goods are hired with an option to purchase within a set period the arrangement normally falls within the terms of the Hire Purchase Act 1971. The GST is therefore payable at the commencement of the hire. However, a potential anomaly existed where the option to buy was not taken up. The agreement then would have become a mere agreement to hire and inevitably the wrong amount of output tax would have been accounted for. Section 25 as previously drafted did not provide scope for an adjustment for this.

The amendment ensures that in the above situation (and any similar circumstances), an adjustment may be made.

Section 20(2) Deduction of Input Tax

Amendment

This adds the words "of input tax" to section 25(2)(b) of the GST Act.

Comment

The amendment ensures that any deduction made pursuant to section 25(2)(b) will be a deduction of input tax. Despite this, the adjustment may be shown on the GST return as an adjustment to output tax.

Section 20(3) Use of Tax Fraction for Credit Notes

Amendment

Replaced are subparagraphs (v) and (vi) of section 25(3)(a); both to permit the tax fraction approach to be used for return calculation purposes for credit notes or debit notes and to waive the requirement to refer to the invoice number and the date of the tax invoice.

Comment

Previously, the tax amount of the tax adjustment was required to be shown on returns. To make the credit note and debit note requirements consistent with those applying to tax invoices, there are two methods to show the adjustment AND the tax involved:

  1. The consideration shown on the tax invoice, the correct consideration, the difference between these two amounts and the tax on the difference OR
  2. Where the tax fraction method has been used: the difference referred to in (i) above and a statement that the difference includes tax.

This approach also fits the return procedures devised by the Department, which are based on a gross amount and then divided by the tax fraction to reach the figure of output tax. The repealing of subparagraph (vi) is consequential to the removal of the requirement to show an individual serialised number on a tax invoice. The removal of the requirements to show the date of the tax invoice recognises that in many cases credit notes and debit notes will be issued when the original supply cannot be specifically identified.

Section 20(4) Use of Tax Fraction for Debit Notes

Amendment

This replaces subparagraphs (v) and (vi) of section 25(3)(b) of the GST Act to give the same effect for debit notes as is given for credit notes by section 20(3) of the Amendment Act.

Comments

Refer to the comments on section 20(3).

Section 20(5) Issue of More Than One Debit Note

Amendment

This adds the words "or debit note" after the words "credit note" in paragraphs (c) and (d) of section 25(3) of the GST Act.

Comment

The amendment provides a consistency of treatment between credit notes and debit notes and corrects a drafting error.

Section 20(6) Details of Prompt Payment Discount to be Shown

Amendment

This amends section 25(3)(e) of the GST Act to require that the terms of a prompt payment discount be clearly stated on tax invoices in order to avoid the necessity to issue a credit note.

Comment

No credit note need be issued if a change in consideration is due purely to a prompt payment discount. The amendment will still enable suppliers to account for a reduced amount of tax, as long as the terms of a discount are made clear on the original invoice.

Section 20(7) Modification of Credit Note and Debit Note Requirements

Amendment

This adds new sections 25(3A) and 25(3B) to the GST Act to ensure the same modification requirements are available for debit notes and credit notes as are available for tax invoices in section 24(2) and 24(6) of the GST Act (ie self-billing and waiving of requirements).

Comment

This amendment extends the same flexibility to the issuing of credit notes and debit notes as is available in the case of tax invoices.

Section 20(8) Adjustment Where Consideration for a Supply Changes

Amendment

This substitutes a new section 25(4) in the GST Act to ensure that an adjustment must be made by a recipient when the consideration for a supply changes, whether or not the recipient has been issued a credit note or debit note.

Comment

Section 25 was deficient in that a recipient of a supply did not need to adjust input tax unless a credit note had been received. Any notice of a change in the consideration should be sufficient, eg where a prompt payment discount has been taken advantage of.

Section 20(9) Deduction of Input Tax

Amendment

Section 20(9) of the Amendment Act ensures that section 25(5) of the GST Act refers specifically to "input tax".

Comment

Refer to the comments on section 20(2) above.

Section 20(10) Fractions of a Cent

Amendment

This adds a new section 25(6) to the GST Act which provides that where the GST component is shown separately on any credit note or debit note, and that GST component involves a fraction of a cent, then the amount may be rounded to the nearest cent. Half-cents and below are to be rounded down.

Comment

This amendment is one of a number which ensures uniformity in the treatment of credit notes and debit notes with the treatment of tax invoices. Refer also to the commentary on section 19(5) of the Amendment Act.

Section 21 of the GST Amendment Act 1986 Bad Debts Section 26 of the GST Act 1985

Section 21(1) and 21(2) Bad Debt Adjustments for Payments Basis

Amendment

Section 21(1) amends section 26(1) of the GST Act, while section 21(2) adds a second proviso to section 26(1). These amendments enable a registered person who accounts for tax on a payments basis to claim an adjustment for bad debts that arise in respect of supplies for which they are effectively required to account for on an invoice basis (ie door to door and hire purchase sales).

Comment

Section 26 of the GST Act previously allowed an adjustment for bad debts that arose in respect of taxable supplies. This adjustment was however limited to registered persons accounting for GST on an invoice basis. Two types of supply may be made by a person on the payments basis in respect of which a bad debt adjustment is appropriate door to door sales and hire purchase sales (both of which are effectively accounted for on an invoice basis). The amendment allows registered persons who account on a payment basis to take advantage of the bad debt provisions in respect of these supplies.

Section 21(3) Bad Debts relating to Insurance Levies

Amendment

A new section 26(1A) is added to the GST Act to allow an insurer to claim a deduction of the tax fraction of any amount paid to the Earthquake and War Damage Commission or the Fire Services Commission. This is in respect of any taxable policy of insurance, to the extent to which the premium payable on that policy has been written-off as a bad debt.

Comment

The new subsection (1A) allows an insurer to claim a deduction where a policy is not cancelled as a result of non-payment of all or part of a premium and a Government levy is payable in respect of that policy. The deduction is equal to one-eleventh of the amount of levy uncollected from the insured and written-off.

Section 22 of the GST Amendment Act 1986 Rights of Objection to Certain Decisions Section 32 of the GST Act 1985

Amendment

This amendment to section 32(1) of the GST Act is needed as a result of the insertion of further decision-making powers of the Commissioner.

Comment

Section 32 of the GST Act gives a right of objection to certain administrative decisions made by the Commissioner in exercising his discretion on matters such as the liability to register and use of the payment basis of accounting. Further decision-making powers are inserted in the Act as a result of the Amendment Act and it is necessary to extend these rights of objection where appropriate. The GST Act's new rights of objection relate to:

(i)

Section 11(1)(a)(ia)

Commissioner's discretion to zero-rate goods exported from New Zealand.

(ii)

Section 15(5)

Commissioner's determination of category for a category C or D registered person.

(iii)

Section 25(3B)

Imposition by the Commissioner, of conditions for the variation of credit notes or debit notes.

(iv)

Section 84(4)

Approval by the Commissioner of any other competent valuer who is not independent.

(v)

Section 86(1)

Commissioner's discretion to allow the use of an alternative method of accounting for GST during the transitional period.

Section 23 of the GST Amendment Act 1986 Determination of Objection Not to Affect Other Assessments or Decisions Section 39 of the GST Act 1985

Amendment

This repeals and substitutes a new section 39. This new section places objections to decisions (by virtue of section 32) on the same footing as objections to assessments.

Comment

The amendment corrects a drafting omission.

Section 24 of the GST Amendment Act 1986 Refunds of Excess Tax Section 45 of the GST Act 1985

Section 24(1) Refunds of Overpaid Tax

Amendment

This repeals and substitutes a new subsection 45(1) of the GST Act to limit the effect of the provision dealing with refunds of overpaid tax, to ensure that it is not in conflict with the provisions dealing with simple refunds of GST.

Comment

This limits the effect of the provision dealing with refunds of overpaid tax, to ensure that it is not in conflict with the provisions dealing with simple refunds of GST.

Section 24(2) Refunds Resulting from an Assessment

Amendment

This repeals the existing subsection 45(2) of the GST Act and substitutes a new subsection 45(2).

Comment

The original subsection was the same as contained in the Income Tax Act. In the GST Act its function is restricted to cases of pure overpayments of calculated tax, eg cheques written out for an excessive amount. The amendment is intended to give effect to this, and ensure that it has no impact on the refund of GST by the Commissioner in the course of assessments and return processing.

Section 25 of the GST Amendment Act 1986 Interest on Refunds Section 46 of the GST Act 1985

Section 25(1) Ability to Offset Interest Payable against Tax Owing to the Department

Amendment

This section contains a number of amendments to subsections (1) to (6) of section 46 of the GST Act.

Comment

These amendments correct minor drafting errors and allow the Commissioner to set off any interest payable to the registered person against any other tax owing.

Section 25(2) Interest Ceasing to be Payable

Amendment

This adds a proviso to section 46(6) of the GST Act to ensure that interest ceases to become payable when the Commissioner gives the notice required by the proviso to subsection (4) of section 46 of the GST Act.

Comment

Section 46 contained two deficiencies in respect of the Commissioner giving notice of his intention to withhold a refund. The deficiencies were -

  1. It was arguable that, where the Commissioner failed to give notice of his intention to withhold payment within 15 working days of receipt of a return he could no longer do so. In fact, the Commissioner should be able to give notice subsequent to this, although interest will still be payable to the date of notice.
  2. If, as a result of correcting the deficiency outlined in paragraph (i), the notice was subsequently sent, interest should cease to be payable from the date of sending the notice. The legislation previously did not achieve this.

Section 26 of the GST Amendment Act 1986 Registration on a Territorial Basis Section 51 of the GST Act 1985

Amendment

This amendment to section 51(1) of the GST Act ensures that persons are compelled to register only if they make supplies IN NEW ZEALAND with a total value in excess of $24,000 in any relevant 12 month period.

Comment

The legislation previously required all persons who made supplies in the course of a taxable activity to a value in excess of $24,000 to register. Since the taxable activity concept had no territorial restriction, this meant that, potentially, all businesses, anywhere in the world, would have had to register if they made any taxable supplies in New Zealand. This amendment will restrict liability to register to only those who make supplies in New Zealand exceeding $24,000 pa.

Section 27 of the GST Amendment Act 1986 Effective Date of Cancellation of Registration Section 52 of the GST Act 1985

Section 27(1) Effective Date

Amendment

This amends section 52(3) of the GST Act to provide that where a registered person ceases to carry on any taxable activity, the effective date of cancellation of registration will be the last day of the taxable period during which the taxable activity ceased or such other date as may be determined by the Commissioner.

Comment

Section 52(2) of the GST Act provides that registered persons who have taxable supplies under the $24,000 threshold may, after 2 years of being registered, apply for cancellation of their registration. The effective date of cancellation, being the last day of the taxable period during which the cancellation of registration is approved.

A similar provision was required where a registered person ceased to carry on ALL taxable activities and applied for cancellation of their registration. The amendment makes the effective date of cancellation the same as in section 52(2).

Section 27(2) Consequential Amendment

Amendment

Section 52(6) is repealed by this subsection.

Comment

This is consequential to the amendment to section 52(3) of the GST Act.

Section 28 of the GST Amendment Act 1986 Registered Persons to Notify Change of Status Section 53 of the GST Act 1985

Section 28(a) Notification of Ability to Use 6 Month Return

Amendment

This removes from section 53(c) of the GST Act the reference to section 15(3) of the GST Act (which dealt with taxable periods), as this reference is now redundant.

Comment

Section 53(c) required a registered person to notify the Commissioner within 21 days of any change that affected the ability to use the 6 monthly or one-monthly return period and the ability to use the payments basis of accounting for GST. Now, there are no criteria that need to be satisfied in order to use the one-monthly return, the reference to section 15(3) is therefore redundant and has been omitted.

Section 28(b) Notification of Any Change Affecting a Direction by the Commissioner

Amendment

This inserts the words "or direction" in section 53(c) of the GST Act.

Comment

This provides that the Commissioner must be informed within 21 days of any change that affects the Commissioner's determination OR DIRECTION in relation to the ability to use a 6 monthly return period and the payments basis of accounting for GST.

Section 29 of the GST Amendment Act 1986 Grouping Section 55 of the GST Act 1985

Section 29(1) Grouping of Companies

Amendment

A proviso is added to section 55(1) of the GST Act to ensure that the grouping provision applies to all companies which would be able to group (under the Income Tax Act) as if the end of any taxable period were the end of an income year.

Comment

Section 191 of the Income Tax Act 1976, which allows grouping of companies, only operates as at the end of an income year. This presented difficulties for companies which would have become eligible to group at some point during a year. These companies should have be able to group for GST purposes from the next taxable period following that time if they wished, rather than having to wait until the end of that income tax year. This would also have worked in reverse, ie if they had ceased to be eligible during the year they would also have ceased to be eligible to group (for GST purposes) at that time.

Section 29(2) Exempt Activities Carried on by Members of a Group

Amendment

This amendment to section 55(7) of the GST Act provides that a taxable supply from one member of a group to another member will only be ignored to the extent that the recipient would have been able to deduct input tax in respect of that supply, if the recipient had not been part of that group.

Comment

As the GST Act stood such a supply would have been ignored, notwithstanding that if that supply had been made by an outside person, no input tax deduction would have been available to any member of the group. The amendment rectifies this position. Inputs to the taxable supply will be fully deductible to the supplier through the representative member. The supplier will charge GST on that portion of the consideration for the supply that relates to the exempt supplies made by the recipient that GST not being deductible to the representative member.

Section 29(3) Supply Deemed to be Made by the Representative Member

Amendment

This amendment to section 55(7) of the GST Act provides that any supply, other than a taxable supply, made by a member of a group is deemed to be made by the representative member.

Comment

This change merely ensures that exempt supplies (as with taxable supplies), are deemed to be made by the representative member, thus ensuring the correct application of the de-minimis rule to the group situation.

Section 29(4) Grouping of Companies with Non-Companies

Amendment

This amendment to section 55(8) of the GST Act allows companies (registered under the Companies Act 1955) to group for GST purposes with other registered persons who are NOT companies.

Comment

Companies which are registered persons may "group" for GST purposes they are a group of companies as determined under section 191 of the Income Tax Act 1976.

Registered persons who are not companies may also apply to be treated as a group for GST purposes where they satisfy the control tests specified in the GST Act.

A similar ability to group is now provided to allow companies and non-companies to be members of the same group where they satisfy the tests that:

  1. one of them controls each of the others; or
  2. one person controls all of them; or
  3. two or more individuals carrying on a taxable activity in partnership control all of them.

Section 30 of the GST Amendment Act 1986 Unincorporated Bodies Obligation of Members Section 57 of the GST Act 1985

Amendment

This amendment to section 57(6) of the GST Act provides that all members of bodies other than partnerships, joint ventures or trusts are jointly and severally liable for the payment of any tax.

Comment

Subsection 57(6) previously made only those members holding office (eg chairman, treasurer, committee members) liable for tax payable. This amendment brings subsection (6) in line with subsection (3) in that every member is jointly and severally liable.

Section 31 of the GST Amendment Act 1986 Agents and Auctioneers Section 60 of the GST Act 1985

Section 31(1) Supplies made by Agents

Amendment

This repeals and substitutes a new section 60(1). The new subsection ensures that where an agent whether or not a registered person, makes supplies on behalf of a registered principal, the supply is deemed to be made by the principal and not the agent.

Comment

Due to the wide scope of the term "supply", the GST Act ensured that supplies made by or to registered persons acting as agents on behalf of registered persons were deemed to be made by/to the principal and not the agent. Non-registered agents are now covered by this provision.

The proviso ensures that only agents who are registered persons have the ability to issue/receive tax invoices, credit notes and debit notes on behalf of their principals. Section 60 previously enabled agents who were registered persons to issue and receive tax invoices only in respect of supplies they made/received on behalf of their principals.

Section 31(2) Consequential Amendments

Amendment

This subsection contains consequential amendments to subsections 60(2) and 60(3) of the GST Act to extend those provisions to cover credit notes and debit notes as well as tax invoices.

Comment

This is in line with the amendments in section 31(1), and the other amendments in the Amendment Act, which give credit notes and debit notes the same treatment as tax invoices.

Section 31(3) Deduction of Input Tax by Agents

Amendment

This adds a new subsection (6) to section 60. The new subsection deems the supply of goods and services by a registered person to an agent acting on behalf of a non-resident non-registered principal, to be made to that agent in certain circumstances.

Comment

GST is intended to be a tax on final consumption in New Zealand. While transportation services may be physically supplied in New Zealand, the embodiment of the costs of such services in the goods transported implies that the "final consumption" of the services occurs when and where the goods are eventually supplied. There should, therefore, be no GST impact on the price of goods that are exported from New Zealand and no impact on the net cost of goods imported to New Zealand by registered persons.

In order to claim a credit for input tax on the domestic transportation of exported or imported goods, the non-resident importer/exporter may register for GST purposes. This solution may be practical for a non-resident trader with significant dealings with New Zealand, however, for many whose contact may be no more than occasional, registration was not a feasible option.

This amendment enables a New Zealand agent who acts on behalf of a non-resident non-registered principal to deduct input tax incurred on the principal's behalf directly in relation to the exportation or importation of goods from or to New Zealand. This ensures that the GST component of domestic transportation charges, cargo handling fees, insurance and similar charges would not become a cost to the overseas exporter or importer who incurred those costs via a New Zealand agent.

Section 32 of the GST Amendment Act 1986 Offences Section 62 of the GST Act 1985

Amendment

The amendment establishes the following new offences:

  1. knowingly issuing more than one tax invoice in relation to the same supply:
  2. knowingly issuing more than one credit note in relation to the same adjustment:
  3. knowingly issuing a tax invoice where no supply will occur.

The penalties for the offences specified in paragraph (i) and (ii) are:

  • a fine not exceeding $2,000 on the first occasion:
  • a fine not exceeding $4,000 on the second occasion:
  • fines not exceeding $6,000 on every other occasion.

The penalties upon conviction in relation to the offence specified in paragraph (iii) above are:

  • a fine not exceeding $15,000 on the first occasion:
  • fines not exceeding $25,000 on every other occasion.

Comment

The Act provides for the imposition of penalties in relation to a range of offences. The penalties fall into three categories which reflect the nature and seriousness of each type of offence.

Prior to these amendments, a registered person could have issued more than one tax invoice and more than one credit note for a single transaction without committing an offence under the GST Act.

In order to ensure taxpayer compliance with the provisions of the GST Act these actions have been made an offence.

A potential for abuse also existed with the issuing of a tax invoice where there was no intention of a supply occurring. Such "manufacturing" of tax invoices has also been specifically made an offence.

Section 33 of the GST Amendment Act 1986 Supplies Expressed in Foreign Currency Section 77 of the GST Act 1985

Amendment

This amends section 77 of the GST Act to ensure that where a supply is made for a consideration expressed in currency other than New Zealand dollars, the consideration for that supply, for GST purposes, will be the $NZ equivalent at the "time of supply" as determined by section 9 of the GST Act.

Comment

Section 77 stated, in general terms, that for GST purposes, all amounts were to be expressed in New Zealand dollars. Some doubt existed as to how this was to be interpreted regarding taxable supplies where the consideration was expressed in foreign currency. The amendment ensures that the consideration for such a supply is to be expressed in the New Zealand dollar-equivalent as at the "time of supply" (generally the earlier of invoicing or payment). Therefore no adjustment is to be made at the time of eventual remittance of funds to New Zealand for any exchange loss/gain.

Section 34 of the GST Amendment Act 1986 Effect of imposition or Alteration of Tax Section 78 of the GST Act 1985

Section 34(1)(a) Alteration of Contract at Any Time

Amendment

This amendment to section 78(2) of the GST Act ensures that a registered person may alter a contract entered into AT ANY TIME (even prior to registration) to take GST into account.

Comment

This amendment makes it clear that this section is applicable to contracts entered into before or after the supplier became a registered person.

Section 34(1)(b) Alteration of Contract when GST Taken into Account

Amendment

This amends section 78(2) of the GST Act to ensure that this section cannot be used to alter an agreed price under a contract simply because the contract itself does not explicitly state that GST has been taken into account.

Comment

Section 78 enables a supplier to alter a contract to incorporate GST where this has not previously been taken into account. Previously the section may have been used in any circumstance unless "it is clear from the terms of the ... contract" that GST had already been taken into account. Many contracts may not contain a clear expression of this, even though GST has been included in the agreed price. The requirement that the contract had to specifically contain reference to GST is now removed. Section 78 will be operative unless it can be established that GST has been taken into account reference could be made to background and supporting documents to the contract.

Section 34(2) Limitation on the Time during which a Contract may be Altered

Amendment

This amendment to section 78(2) limits the ability of suppliers to increase prices by the amount of GST, consequent to the introduction of the tax, to only contracts or agreements entered into prior to 1 January 1987.

Comment

Section 78(2) of the GST Act operates to protect suppliers who have not taken GST into account when setting prices, and subsequently find that the imposition of GST, defined as "an alteration in the law", necessitates an increase in their prices. This provision, which allows suppliers to increase prices that have been already set, has been limited to contracts or agreements entered into prior to 1 January 1987. The limitation has been necessary for consumer protection purposes.

Section 34(3) Prescribed or Determined Amounts

Amendment

This ensures the application of section 78(3) of the GST Act to fees and charges prescribed or determined by statute.

Comment

Previously, section 78(3) only referred to fees and charges "prescribed" under an Act or regulation. Acts and regulations also "determine" fees and charges and this merely ensures these are covered also.

Section 34(4) Statutory Minimum or Maximum Prices

Amendment

This amends section 78(3) of the GST Act to add two provisos:

  1. The FIRST PROVISO ensures that the automatic increase of statutory fees and charges provided for under that section will not result in the breach of any requirements under any other statute relating to maximum or minimum pricing requirements.

Comment

Where a statute prescribes or determines penalties for breach of maximum or minimum amounts laid down pursuant to that statute, it is not clear whether the imposition of GST on those amounts (and their subsequent increase) may activate those penalty provisions. This clarifies the position by deeming any such maximum or minimum amounts to also be increased by the addition of GST for the purposes of those statutes.

  1. The SECOND PROVISO ensures that section 78(3) does not have the effect of automatically increasing government benefits by the rate of GST.

Comment

Section 78(3) was intended to apply only to government fees and charges and other statutory maximum or minimum amounts imposed by Government for taxable supplies. However, the section as it was previously worded could also have been construed to apply to certain benefits paid through departments such as Social Welfare and Health. This would have occurred where benefits, the amounts of which are prescribed by Act or regulation, are payable to help beneficiaries purchase specific goods or services which will be taxable under the GST Act. An example is the General Medical Services Benefit since this is payable to help meet the cost of doctors fees (which will be taxable). Section 78(3) could have had the effect of increasing these benefits by the rate of GST from 1 October 1986, and by any subsequent changes in the GST rate. The amendment ensures that this is not the case. Although an adjustment in such payments will probably occur, the combined effect of the removal of sales taxes and reductions in the rate of income tax may mean that a 10 percent adjustment is not appropriate.

Section 34(5) Supplier's Power to Recover Increased Prices

Amendment

This repeals and replaces section 78(5) which refers to the recovery of "tax charged".

Comment

The amendment explicitly provides that where any supply is charged with tax, the amount of any increase in consideration as a result of that charge may be recovered by the supplier from the recipient.

Section 35 of the GST Amendment Act 1986 Deductions for Sales Tax Section 83 of the GST Act 1985

Section 35(1)(a) Goods Subject to Excise Duty on 1 October 1986

Amendment

This amendment to section 83(1)(c) ensures that the credit for sales tax paid on trading stock held at 30 September 1986 is not available in respect of stock of a type that is, on 1 October 1986, subject to excise duty imposed by Part IV A of the Customs Act 1966.

Comment

The GST Act was drafted on the assumption that certain goods would continue to be subject to sales tax after the introduction of GST. The provision allowing credit for sales tax on trading stock held at 30 September previously excluded stock of a type subject to sales tax on 1 October 1986. Rather than being subject to sales tax, a small range of goods will now be subject to excise duty. The restriction to the sales tax credit provision is amended to refer to excise duty rather than to sales tax.

Section 35(1)(b) Sales Tax on Secondhand Goods

Amendment

This amendment to section 83(1)(d) ensures that a credit for sales tax paid on imported secondhand goods held as at 30 September 1986 will be allowed.

Comment

This is to correct a drafting error. At the time section 83 was drafted to allow a deduction for sales tax paid on trading stock the Department was not aware that sales tax was payable on any secondhand goods. When reported, secondhand car parts are subject to sales tax and, as such, a credit will be allowed where the registered person has paid the sales tax on importation.

Section 36 of the GST Amendment Act 1986 Supplies Prior to 1 October 1986 Section 84 of the GST Act 1985

Section 36(1) Amended Time of Performance Rule for Goods

Amendment

This adds a new subparagraph (1a) to section 84(1)(a) to provide that where a supply of goods involves both ownership passing and the removal of those goods, the time of performance (for the purposes of the transitional provisions) is the earlier of the time of removal OR THE TIME OWNERSHIP PASSES.

Comment

For the purposes of determining whether a supply of goods occurs on or after 1 October 1986 (and hence whether GST is payable), the GST Act previously referred only to the time of removal and to the time the goods were made available.

The aim of section 84 is to preclude the avoidance of GST merely by bringing forward the invoicing or part-payment of the supply prior to October 1986. Where the supply of goods involved both their removal and ownership passing, the Act imposed GST in circumstances where ownership passed prior to 1 October but where removal did not occur until after that date. It is considered that extending the above test to recognise that OWNERSHIP MAY PASS prior to the physical removal of the goods does not compromise the aim of the transitional provisions.

Section 36(2) Time when Services are Performed

Amendment

This inserts two new subsections;

  1. Services Performed Uniformly over Period(s) in Contract.

    Inserted is a new section 84(1A) which provides that where a registered person supplies or agrees to supply services by virtue of any contract, agreement, or Act, and that contract, agreement, or Act provides, in respect of any period, or periods, that
    1. any right is granted, or any thing is to be done, or omitted to be done:
    2. any payment is due or may be made:
    3. the contract or agreement is in force, or enforceable, or will have effect

      then those services will be deemed to be performed continuously and uniformly throughout that period or periods.

Comment

The intended effect of the transitional provisions is that, in general, where goods are delivered or services are performed prior to 1 October 1986 no GST liability will apply to such supplies. Conversely, where the delivery or performance occurs after 1 October 1986, GST will be charged on the supply. Determining the time of supply in this manner overrides the general rule adopted in the Act based on the earlier of the time of invoicing or payment.

Further, where a charge is made prior to the introduction of GST for SERVICES that were to be supplied both before and after 1 October 1986, the portion of the charge that relates to the post-1 October supply will be subject to the tax. The most common example of this is annual membership charges and subscriptions levied by sports clubs and other organisations.

The rationale for imposing the GST in this manner to such supplies spanning 1 October is that, without such a treatment individuals would have been paying GST on goods and services supplied prior to the introduction of the tax simply by virtue of the fact that invoicing or payment first took place after that date. Similarly, individuals would have been able to avoid paying GST on supplies to be received after its introduction simply by making early payment.

The amendment clearly gives effect to the above-stated policy by deeming the time of performance of the services to be continuously and uniformly over the period or periods covered by the terms of the supply. For example, the amendment ensures that an insurance premium is considered to be payment for a supply of services performed continually and uniformly throughout the period of the insurance cover.

  1. Lifetime Licences Inserted is a new section 84(1B) which ensures that lifetime licences issued prior to 1 October 1986 are not taxable.

Comment

As the legislation stood, the part of a lifetime licence issued prior to 1 October 1986, that related to the period after 1 October may have been taxable. As there was no way of establishing how long such a licence would exist for after the introduction of GST, and thus the need to apportion the tax, it was decided to disregard the tax liability of lifetime licences issued prior to 1 October 1986.

Section 36(3) Accounting for GST Payments Based Taxpayers

Amendment

This ensures that, in respect of supplies made by or to traders accounting on the payments basis, that trader accounts for tax to the extent that payment has been received before 1 October in the first return furnished after 1 October 1986.

Comment

This amendment to section 84 was required to facilitate the accounting for GST on supplies subject to the transitional provisions in a manner consistent with the way they would normally be accounted for by the supplier. Specifically, these amendments were necessary in respect of traders on the payments basis to ensure that in their first return they only account for such supplies to the extent that they have received payment prior to 1 October 1986. Subsequent payments will be taxed as and when received.

Section 36(4) Consequential Amendment

Amendment

This makes subsection (3) of section 84 subject to subsection (4). Note that subsection 84(4) of the GST Act is repealed and substituted by section 36(5) of the Amendment Act.

Comment

The amendment ensures that subsection 84(3), which determines the time of performance of a supply of goods and services in general, is subject to subsection (4), which relates to the supply of a building or civil engineering work.

Section 36(5) Buildings Partly Constructed at 30 September 1986

Amendment

This repeals and substitutes a new section 84(4). The new subsection makes it clear that the provision applies only to supplies for which written contracts have been entered into before 1 October 1986. The supplies covered are the construction, major reconstruction, manufacture, or extension of a building or civil engineering work.

The amendment also provides that the total payments in respect of the supply which are deemed by section 9(1) or section 9(3)(aa)(ii) to take place before 1 October 1986 are subtracted from the value of all work and materials permanently incorporated in or affixed on the site of the building or civil engineering work as at 30 September 1986. If the value exceeds the payments made, the excess may be carried forward and applied against the later payments. If the payments made exceed the value as at 30 September then the difference must be accounted for by the supplier as consideration for a taxable supply.

Comment

The previous section 84(4) was unclear in that it potentially applied to all subsequent sales of buildings which were partly (or fully) completed as at 30 September. Moreover the justification of compensating purchasers who are subject to GST does not apply to supplies which are not contracted for until after 1 October 1986.

Examples

  1. VALUATION OF WORK COMPLETED AS AT 30 SEPTEMBER 1986 EXCEEDING THE TOTAL VALUE OF SUPPLIES MADE under section 9(1) or 9(3)(aa)(ii), i.e., the valuation exceeds any amounts paid/invoiced, or any amounts due to be paid or invoiced. In this situation the first supply that occurs after 1 October 1986 will be reduced by the excess.
     
    Contract price $500,000
    Valuation as at 30 September $275,000
    Supplies made pursuant to section  
    9(1) or 9(3)(aa)(ii) $25,000
    Excess $25,000
    First Supply after 1 October $10,000
    Excess $25,000
    Consideration subject to GST NIL
    Next Supply $35,000
    Balance of Excess $15,000
    Consideration subject to GST $20,000


 

  1. VALUE OF SUPPLIES MADE PRIOR TO 1 OCTOBER under sections 9(1) or 9(3)(aa)(ii) EXCEEDING THE VALUATION OF WORK COMPLETED as at 30 September 1986, ie, any amounts paid/invoiced or due to be paid or invoiced exceed the valuation. In this situation the excess is deemed to be consideration in money for a taxable supply occurring on 1 October 1986.
     
    Contract price $600,000  
    Invoice Issued Amount Paid GST
    (1) 14.05.86 $100,000 -
    (2) 14.07.86 $100,000 -
    (3) 14.09.86 $100,000 -
    (4) 01.10.86 deemed supply $5,000
    (5) 14.11.86 $100,000 $10,000
    (6) 14.01.87 $100,000 $10,000
    (7) 14.03.87 $100,000 $10,000
      $600,000 $35,000
    Valuation of work completed as at 30 September 1986 $250,000
    Progress payments made to that date $300,000
    Supply deemed to occur on October 1986 $50,000
    Total supply $600,000
    valuation of work $250,000
    Taxable portion of supply $350,000

Section 36(6) Valuation of Building Work by Qualified Persons

Amendment

This permits the Commissioner, in appropriate cases, to allow the valuation of work in progress on buildings as at 30 September 1986 to be made by suitably qualified persons, whether or not independent of the supplier of the building.

Comment

It has been suggested that in complying with the transitional rule relating to buildings under construction as at 30 September 1986, it will be expensive to obtain INDEPENDENT valuations. Many builders, however, employ "in-house" valuers and quantity surveyors who could accurately measure the work completed. It is appropriate to allow this work to be undertaken by those persons where possible, subject to the approval of the Commissioner.

Section 37 of the GST Amendment Act 1986 Contracts Entered Into on or Before 20 August 1985 Section 85 of the GST Act 1985

Sections 37(1)(a) and (b) Statutorily Prescribed Charges and Agreements

Amendment

This ensures that transactions based on statutory authority and not on written contracts are subject to the same provisions as those made pursuant to written contracts.

Comment

Section 85 zero-rated supplies made pursuant to written contracts entered into on or before 20 August 1985. To ensure consistent treatment, the section is amended to cover supplies entered into on or before 20 August 1985 pursuant to any agreement under statutory authority or licence.

Section 37(1)(c) Definition of "Non-Reviewable Contract"

Amendment

This subsection amends the definition of "non-reviewable contract" to ensure that all pre-20 August 1985 contracts which could conceivably be reviewed in such a way as to add GST will be regarded as "reviewable contracts".

Comment

There was confusion over the meaning of the definition of "non-reviewable contract" in the Act. This definition previously referred to a capacity to add GST to a contract price. There was a misconception that the contract must either specifically allow for GST or else contain a formula which would allow GST to be added. The amendment makes it clear that all contracts will be held to be "reviewable" unless it is impossible in some way to adjust the price for GST. For instance, a general review clause (ie one which allows for a renegotiation of the consideration) in a lease will make it a "reviewable contract". Where a contract allows for the alteration of the consideration based on a tax inclusive indicator (e.g. CPI) or a proxy (e.g. tax inclusive turnover), that contract will not be a "non-reviewable contract" as an adjustment has been made, albeit indirectly, for GST.

Section 37(2) Definition of "Reviewable Contract"

Amendment

This substitutes a new definition of "reviewable contract" in section 85 of the GST Act to specify that such contracts must be IN WRITING and specify the consideration for the supply in question.

Comment

As the legislation stood, the transitional rules zero-rated supplies made under certain contracts entered into on or prior to 20 August 1985. "Non-reviewable contracts" are fully zero-rated and "reviewable contracts" are zero rated up to the first opportunity for review. However, "reviewable contract" was defined as any contract which is not a "non-reviewable contract". This left open a partial zero-rating to all oral and other contracts which might have satisfied none of the criteria contained in the key definition of "non reviewable contract". It is intended that only those that fail to meet paragraph (c) of that definition (which refers to the ability to review) will be granted the partial zero-rating.

Section 38 of the GST Amendment Act 1986 Alternative Method of Accounting for Transitional Supplies New Section 86 of the GST Act 1985

Amendment

This adds a new section 86 to the GST Act. Section 86 provides for an alternative method of accounting for transitional supplies (ie those to which section 84 applies) available at the Commissioner's discretion to registered persons who account for GST on a payments basis. The alternative method allows registered persons who account on a payments basis to simply account for the tax fraction of ALL receipts on or after 1 October 1986, while leaving their ultimate GST liability unchanged.

Comment

A general outline of the alternative mechanism is as follows:

The majority of traders using the payments basis of accounting for GST should be able to account for output tax on most supplies by taking the tax fraction (ie, one-eleventh) of total receipts and payments. Although this will be the situation in respect of supplies that occur on and after 1 October 1986, this simple method cannot be used in respect of amounts received for services supplied over a period spanning 1 October as the GST component will not be one-eleventh of the consideration paid.

For example, a trader who accounts on a payments basis must separately recognise receipts that relate to supplies such as service contracts for the April 1986 March 1987 year (the tax component of which is one-twenty first). At the same time, the tax component of all other receipts for supplies which are fully subject to the GST will be calculated using the tax fraction (one-eleventh).

For smaller organisations such as sports clubs, the ability to separately identify these charges in order to apply the different fractions should not prove difficult. Their receipts will generally fall into a narrow range of categories, with the only ones likely to be affected by the transitional provisions being subscriptions. As separate recording of these receipts is generally being undertaken at present no significant problems are foreseen.

It is reasonable to expect, however, that practical problems may exist for larger organisations which will use the payments basis (such as many local authorities) and for smaller organisations with a large range of receipts that may be subject to differing tax fractions.

The alternative method seeks to alleviate these problems. Any person wishing to use this alternative method must make written application to the Commissioner.

In relation to a registered person accounting for GST on the payments basis and to a specified class of supplies, the following adjustments may be made:

STEP 1:

(Section 86(2)(a))

Treat as output tax in the first return furnished:

  1. The actual amount of GST received prior to 1 October 1986 (irrespective of whether or not invoiced): and
  2. Any amount of GST invoiced prior to that date and still outstanding at 1 October 1986.

This adjustment merely brings to account the amount of GST that would have been included in the first return if the registered person had been accounting for GST on the invoice basis. As the following adjustments under this mechanism will, over time, be equal, the adjustment at step 1 yields the correct liability in respect of the supplies made over the transition.

STEP 2:

(Section 86(2)(b))

Deduct (non-refundable), in the first return furnished, ONE-ELEVENTH of the amount of invoiced debtors at the end of 30 September 1986. For practical purposes, this would be limited to only those debtors which are, at that date, less than two years old.

It should be noted that for local authorities this credit will also need to include one-eleventh of rate instalments for the year to 31 March 1987 not invoiced at 30 September 1986 and not included in debtors above.

STEP 3:

(Section 86(2)(d))

On an ongoing basis, the registered person will include in the calculation of output tax ONE-ELEVENTH of all amounts received from 1 October 1986 in respect of the specified class of supplies. This is irrespective of the actual amount of GST that would otherwise be accounted for when those monies are received. The registered person will not include any amounts received:

  1. In respect of bad debts that were written-off prior to 1 October 1986; Any amounts received in respect of bad debts written-off will be separately identified and the GST component (if any) accounted for.
  2. In respect of debtors that were more than two years old at the end of 30 September 1986; Such amounts will contain no GST component and will therefore play no part in the calculation of output tax.
  3. In respect of supplies other than those specified as being subject to this alternative mechanism; These supplies, e.g. supplies of a kind not subject to the transitional provisions, will be accounted for in the normal manner.

STEP 4:

(Section 86(2)(c))

One further adjustment may be necessary where debtors existed as at the end of 30 September 1986 but not invoiced at that date as the amount or value of the supply had not then been determined. This will arise, for example, where the charge for a supply is determined on the basis of a meter reading and the meters have not been read on 30 September.

In such a case a credit would be taken (in one return only) of one-eleventh of such debtors that were verified on or after 1 October 1986.

STEP 5:

Section 86(2)(e))

As and when any debtors for which a credit was allowed as per steps 2 and 4 above are written-off, a corresponding debit of ONE-ELEVENTH of the amount written-off will be included in the appropriate return.

Section 39 of the GST Amendment Act 1986 Amendment to Rating Act 1967

Amendment

This amends section 65 of the Rating Act 1967 by adding a new subsection (4), which ensures that no rates assessment is invalidated by its use as a tax invoice.

Comment

The Rating Act specifies the form which a rates assessment must take. It is possible that the addition of the details required to allow a rates assessment to be treated as a tax invoice would invalidate the assessment for the purposes of the Rating Act. The amendment ensures that this will not be the case.