Part II - Goods And Services Tax Amendment Act 1988

This commentary item was published in Public Information Bulletin Volume 174, May 1988

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Section 1 - Short Title

This section provides for this Act to be referred to as the Goods and Services Tax Amendment Act 1988 and to be read together with and deemed part of the Goods and Services Tax Act 1985.

This Act is deemed to have come into force on the 24th of March 1988, the date on which the Act received the Governor-General's assent. It applies to supplies made on or after that date.

Sections 4, 5, 10, 15 and 16 have application dates other than the general application date (for details see commentary in respect of these sections).

Section 2 - Interpretation

Section 2 repeals the definition of the term "secondhand goods" and substitutes a new meaning for this term.

The previous meaning of this term enabled it to be interpreted more liberally than was originally intended, insofar as it may have included goods that would normally not be considered to be "secondhand goods". Such goods would include newly manufactured goods, trading stock, livestock, and pets. The use of the words "... acquired for use, or held for use ..." gave rise to this liberal interpretation being possible.

The intention was that the term "secondhand goods" should apply to goods that had been previously owned by another person for their own use. This is the common meaning of the term "secondhand goods". This may still include such goods as trading stock, livestock, and pets where those goods have been previously owned by another person for their own use. However, it will ensure that for example livestock progeny does not constitute a "secondhand good".

The new definition gives secondhand goods their commonly understood meaning by not specifically defining the term. Instead, it merely excludes the following types of secondhand goods from the definition:

1. A secondhand good that constitutes a fine metal.
2. The fine metal component off a secondhand good that is made or manufactured from gold, silver, or platinum.

The reason for the exclusion of goods that are fine metals or contain a fine metal element from the meaning of "secondhand goods" is an inherent result of the exemption status afforded to the supply of fine metal. This is to ensure that a "secondhand goods" imputed tax credit is not available in these cases.

This new definition applies with effect to supplies made on or after 24 March 1988, the day on which this Act received the Governor General's assent.

Section 2(2) repeals section 2(7) of the GST Amendment Act 1986 which introduced the exclusion of fine metal from the meaning of "secondhand goods" in the previous definition.

Section 3 - Meaning of term "open-market value"

This section amends section 4 of the principal Act which provides the mechanism to determine the open market value of a supply.

Section 4(3) as previously drafted deemed the open-market value of a supply to be the value of a similar supply in New Zealand that was freely offered and made between persons who are not associated persons. The term "value" in the context of the GST Act means a GST exclusive amount.

The other subsections of section 4 which determine the open-market value of a supply in differing circumstances refer to the consideration in money that a similar supply would fetch. The term consideration in money is a GST inclusive concept. Section 4(3) has therefore been amended to ensure consistency with the balance of the section.

Section 3(1) omits the words "value of a similar supply" from section 4(3) and substitutes the following words "consideration in money which a similar supply would generally fetch if supplied in similar circumstances at that date", to ensure that the section is consistent.

Section 4 - Meaning of term "supply"

Section 4 amends section 5 of the principal Act by introducing a new subsection 3A to reflect the Government's announcement in its 17th of December 1987 Economic Statement. The proposal outlined in the Economic Statement is a temporary measure. It provides some relief for non-profit bodies and voluntarily registered traders that wish to opt out of the GST system as a result of the impending changes to the treatment of non-profit bodies for GST purposes, or because of poor advice received at the time of registration.

The new subsection 3A will allow a non-profit body or a voluntarily registered trader an imputed credit in respect of goods and services retained on cessation of registration where:

1. The non-profit body or a voluntarily registered trader applies for deregistration between the 1st of April 1988 and the 30th of September 1988 and the registration is subsequently cancelled as a result of that application in terms of section 52 of the GST Act; and
2. Those goods and services were acquired or produced on or before the 30th of September 1986.

The amount that will be allowed as an imputed credit under this subsection is 1/11th of the lesser of:

• the cost of the those goods and services to the supplier as at the 30th of September 1986
• the open market value of those goods and services as at the date of that deemed supply.

A voluntarily registered person for the purposes of this section is a person who:

1. Voluntarily registered for GST under section 51(3); and
2. At no time since registering would have been required to register under the provisions of sections 51(1) and 51(2).

A non profit body is one to which the definition in section 2 of the GST Act applies.

The amendment applies to supplies made on or after 1 April 1988 in accordance with the deeming provisions of section 5(3) of the GST Act.

Section 5 - Meaning of term "taxable activity"

Subsections (1) and (2) of this amendment break the provisions of subsection (3)(a) of section 6 of the GST Act into two parts, paragraphs (a) and (aa), to make the meaning clearer.

A "private recreational pursuit or hobby" can only be carried on by a natural person. The new paragraph (a) simply inserts the words 'being a natural person' at the start to limit its application to those types of 'person'. The new paragraph (aa) clarifies the meaning in relation to persons other than 'natural persons'. It provides that the term "taxable activity" in relation to those persons does not include activities which would be essentially a private recreational pursuit or hobby if they were carried on by a natural person.

Subsection (3) of the amendment amends the list of persons in section 6 of the GST Act whose engagement, occupation or employment is not a taxable activity. It now includes any person whose appointment is made by the Governor-General or the Governor-General in Council and evidenced by a warrant or by an Order in Council or by a notice published in the Gazette in accordance with section 2(2) of the Official Appointments and Documents Act 1919.

These amendments apply from the 3rd of December 1985.

Section 6 - Time of supply

This section amends section 9 of the GST Act to ensure that in cases where the time of supply is dependent upon the issue of an invoice, it is immaterial whether the invoice is issued by the supplier or by the recipient of the supply. The amendment inserts the words "or the recipient" after the words "is issued by the supplier" in subsections (1) and (6) of section 9 with effect to supplies made on or after the 24th of March 1988, the day the legislation received the Governor-General's assent.

Section 7 - Value of supply of goods and services

This section amends section 10(15) of the GST Act by removing the reference to "gaming machine" in paragraph (a) and deleting paragraph (b) which referred to an "amusement device". These terms were previously defined in subsection (15) for the purposes of interpreting subsection (14) of the Act. They are not referred to in subsection (14) so their inclusion in subsection (15) is not required.

Section 8 - Zero-rating

This section amends section 11 of the GST Act which provides for the zero-rating of supplies. Subsection (1) of section 11 enables a supplier to claim zero-rating for exports of goods where the Commissioner is satisfied that the goods have been exported to a country or territory outside New Zealand. Subsection (1) of this section amends section 11(1)(a)(ia) to provide that in future, the Commissioner must be satisfied that the goods have been exported to a country or territory outside New Zealand by the exporter. It will no longer be sufficient that the goods be exported by the purchaser or by third party. Only the person who exports the goods will in future be eligible for the zero-rating provision.

Subsections (2), (3) and (4) of the amendment extend the zero-rating provisions to include materials used in the repair of any goods that are temporary imports and goods supplied to certain ships or aircraft for use as stores for consumption outside New Zealand.

Subsection (2) inserts two new paragraphs, (ba) and (bb), into section 11(1) of the GST Act. Paragraph (ba) provides zero-rating for goods supplied in the course of repairing, renovating or treating any goods that are temporary imports to which section 11(2)(c)(ii) applies. To be eligible for zero rating, the goods supplied must be wrought into, affixed to, attached to, or otherwise form part of the temporary import. If the goods supplied are consumable goods, they must become unusable or worthless as a direct result of being used in the repair, renovation, modification or treatment process.

In relation to those consumable goods, it is not sufficient that the goods become partly worn out in repairing, etc., other goods. They must become unusable or worthless as a direct result of the process of repair, etc., of the goods that are temporary imports. It should also be noted that the legislation effectively applies to consumable aids only. Food, drink, etc., consumed by employees engaged in the type of work will not qualify, nor clothes worn by them. Only those consumable goods that become unusable or worthless as a direct result of being used in the repair, renovation, modification or treatment process qualify.

Paragraph (bb) extends zero rating to goods supplied to aircraft leaving New Zealand for an overseas destination, fishing vessels proceeding outside coastal waters and foreign-going ships, provided the goods are supplied for use as stores for consumption outside New Zealand.

Subsection (3) of the amendment is a consequential amendment to the proviso to section 11(1) of the Act.

Subsection (4) inserts a new subsection (1A) into section 11 to provide definitions of the terms "aircraft", "coastal waters", "fishing vessel" and "foreign going ship". Aircraft has the same meaning as in the Civil Aviation Act 1964 while the other terms have the same meaning as in section 2 of the Shipping and Seamen Act 1952.

The amendments contained in subsections (2), (3) and (4) of section 6 apply to supplies made on or after the 24th of March 1988, the day on which the Amendment Act received the Governor General's assent.

Subsection (5) of section 6 replaces paragraph (a) of section 11(2) with four new paragraph relating to the zero-rating of the transport of passengers and goods to or from New Zealand. The purpose of the amendment is to make it perfectly clear that the zero rating provisions apply only to international transportation. It provides that, for supplies made on or after the 24th of March 1988, the following international transportation only will qualify for zero-rating:

• (a) Services (other than ancillary transport activities such as loading, unloading and handling) comprising the transport of passengers or goods:
  • from a place outside New Zealand to another place outside New Zealand; or
  • from a place in New Zealand to another place outside New Zealand; or
  • from a place outside New Zealand to a place in New Zealand.
• (aa) Services comprising the transport of passengers within New Zealand to the extent that the transport is by aircraft and constitutes "international carriage" for the purposes of the Carriage by Air Act 1967; or
• (ab) Services (including any ancillary transport activities such as loading, unloading and handling) comprising the transport of goods within New Zealand to the extent that the services are supplied by the same supplier as part of the service of the transport of passengers or goods from New Zealand to an overseas destination, or from an overseas destination to New Zealand; or
• (ac) Services comprising the insuring, or the arranging of insurance, of passengers or goods to which any of paragraphs (a) to (ab) apply. The zero-rating also applies to the arranging of the transport of passengers or goods to which any of paragraphs (a) to (ab) applies.

The principal feature of the amendment is that it restricts the zero-rating of internal passenger transport to air travel within New Zealand that constitutes "international carriage" for the purposes of the Carriage by Air Act 1967. This will require the travel within New Zealand to be sold on what the industry defines by international convention as an "international ticket". Generally, air travel within New Zealand can only be included within an international ticket if three conditions are met:

• the air travel is part of an international journey
• it is booked at the same time as the international journey
• it is purchased through the same agent supplier.

Air travel within New Zealand will therefore no longer be eligible for zero-rating unless it meets the requirements of the classification of international air travel as established in the Warsaw Convention of 1929 and enshrined in New Zealand law as "international carriage" under the Carriage by Air Act 1967.

In addition, passenger travel within New Zealand other than by aircraft will not qualify for zero-rating irrespective of whether or not it forms part of an international journey or is included in an international ticket.

The transport of goods within New Zealand (including loading, unloading and handling costs or similar ancillary transport activities) will qualify for zero-rating where, and to the extent that, the transport forms part of the transportation of those goods to or from New Zealand and the same person who supplies the international transportation also supplies the internal transport.

Finally, the insuring of passengers or goods qualifying for zero-rating will also be eligible for zero-rating. In addition, the zero-rating of services comprising the transportation of passengers and goods is not restricted to the person who provides that service. It is also available to the person who arranges the transport of those passengers or goods provided that transport is eligible for zero-rating.

This amendment applies to services provided on or after the 24th of March 1988 the date on which the legislation received the Governor-General's assent.

Section 9 - Imposition of tax on imports

There are a number of circumstances in which goods are taken out of New Zealand, used overseas for a short period of time in the conduct of a person's taxable activity, and then brought back to New Zealand. Examples would be works of art, tools of trade, scientific specimens, travellers samples and racehorses. The present GST treatment in these cases is to charge GST on reimportation and allow it as an input credit. The difficulty with this treatment is that it can cause severe cash flow problems, particularly where the registered person accounts for GST on a payments basis.

Section 9 of Amendment Act deals with this problem by extending the proviso to section l2(4)(aa) of the GST Act to enable section 164 of the Customs Act 1966 to be used on the reimportation of goods that were not zero-rated when they were exported from New Zealand.

Under the new application of section 12(4)(aa) of the GST Act, section 164 of the Customs Act will be able to be used to enable goods exported from New Zealand and subsequently reimported to be admitted free of GST. This will apply where the goods are reimported by the same person who exported them if, at the time of their export from New Zealand, the goods were not:

• zero-rated pursuant to section 11 of the GST Act
• a supply made before the 1st of October 1986 that would have been zero rated pursuant to section 11 if the goods had been supplied in that day.

This amendment applies in respect of supplies made on or after the 24th of March 1988, the day on which the legislation received the Governor General's assent.

Section 10 - Calculation of tax payable

Section 10 of the Amendment Act amends section 20 as a consequence of the amendment to section 5 achieved by section 4 of this Amendment Act. Under that amendment, non-profit bodies and voluntary registrants who apply for deregistration between 1 April 1988 and 30 September 1988 can claim an input credit on goods acquired on or before 30 September 1986 that are the subject of a deemed supply on deregistration.

Subsection (1) inserts a new paragraph (ea) into section 20(3) of the principal Act. This enables the output tax to be reduced by the amount calculated under section 5(3A) of the Act (i.e., 1/11th of the lesser of the cost of the eligible goods and services at 30 September 1986 or their market value on deregistration).

Subsection (3) repeals the second and third provisos to section 20(3) as these are no longer required.

Subsection (3) inserts a new subsection (3A) into section 20 of the GST Act. The new subsection deals with the situation where an input credit is allowed to any registered person under section 5(3A) (deregistration by a voluntary registrant or non-profit body applied for between 1 April 1988 and 30 September 1988) and the person subsequently re-registers for GST. In these cases, if the goods or services in respect of which that input credit was allowed are used in that new activity within five years of deregistration, no input credit is able to be claimed by that person in respect of that subsequent acquisition.

This provision also deals with the situation where an input credit is allowed under section 5(3A) and the goods or services are subsequently supplied to an associated person, for the purpose of carrying on a taxable activity, within five years of deregistration. In these cases the associated person is unable to claim an input credit in respect of that acquisition.

Subsection (4) is a consequential amendment that inserts a reference to section 20(3A) into section 20(4).

These amendments come into force on the 1st of April 1988 and apply to supplies made on or after that day.

Section 11 - Goods and services tax incurred relating to determination of liability to tax

There is at present some doubt as to whether the GST component of services supplied to a registered person in establishing, or challenging, that person's income tax or GST liability may be claimed as an input credit.

This amendment removes any doubt for the future by inserting a new section 20A into the GST Act to specifically allow an input credit in these circumstances. The amendment applies in respect of supplies made in or after the 24th of March 1988, the day on which the legislation received the Governor-General's assent.

Subsection (1) of the new section defines the term "assessable income", "income year" and "taxpayer" as having the same meanings as in the Income Tax Act 1976. It also defines "goods and services tax payable" as meaning the amount calculated under sections 19 and 20 of the GST Act, and including:

• any amount referred to in section 17(2) or section 27(6) of that Act
• any amount refundable under sections 19 and 20 of that Act.

Subsection (2) of the new section 20A deems certain goods and services to have been acquired by a registered person principally for the purpose of making taxable supplies and requires the Commissioner to allow that person a deduction under section 20(3) of the GST Act for the tax charged thereon. It applies to goods or services acquired by the registered person in connection with:

1. the calculation or determination of the person's assessable income for income tax purposes for any income year
2. the calculation or determination of the GST payable by the person for any taxable period
3. the preparation, institution, or presentation of an objection or an appeal against or in consequence of, any income tax or GST determination or assessment made by the Commissioner in respect of that person
4. any contribution made by the registered person towards expenses incurred by any other taxpayer or registered person where those expenses are of a type to which section 20A applies and the registered person has objected to an assessment or determination made by the Commissioner on a related matter.

Subsection (3) of the new section 20A provides that the new section does not apply to goods and services acquired by the registered person in connection with:

1. any matter or assessment arising from an income tax return or a GST return where that return is, in the opinion of the Commissioner, fraudulently or wilfully misleading
2. any offence under any of the Inland Revenue Acts
3. any penal tax assessment other than one which is subsequently cancelled
4. any objection or appeal which the Commissioner considers to be of an inconsequential or frivolous nature.

Subsection (4) provides for the situation where any amount is received by the registered person at any time, whether by way of reimbursement, award of the Court, recovery or otherwise in respect of goods and services deemed under section 20A to be acquired for the purpose of making taxable supplies. It deems these amounts received to be supplied by the registered person in the course of a taxable activity in the taxable period in which it is received.

Subsection (2) of the Amendment Act consequentially amends section 20(3) of the GST Act by inserting a new paragraph (h). The new paragraph enables a deduction to be claimed, in calculating output tax attributable to any taxable period, of the amount allowable under the new section 20A in respect of goods and services supplied during that taxable period.

This amendment applies to goods and services supplied on or after the 24th of March 1988, the day on which the legislation received the Governor-General's assent. It applies in relation to supplies made on or after that date even though the supply may be in respect of the income tax or GST liability of an earlier taxable period.

Section 12 - Credit and debit notes

Section 25(3)(a) of the GST Act provides that where GST shown on tax invoice exceeds the amount charged, the supplier must supply the recipient with a credit note containing certain information as specified in the subsection. Subparagraph (ii) requires the name and address and registration number of the registered person to be recorded. Section 25(3)(b) requires a debit note to be issued where the GST shown on the tax invoice is less than that charged. In these cases, subparagraph (ii) also requires the name, address and registration number of the registered person to be recorded.

Section 12 of the Amendment Act amends section 25(3)(a)(ii) and (3)(b) (ii) to remove the requirement that the address of the registered person be recorded.

Section 13 - Assessment of tax

Section 27(6) of the GST Act provides that where a non-registered person supplies goods and services and charges GST, that person is deemed to be a registered person and the tax charged is required to be paid to the Commissioner. It applies where subsection (1)(d) of section 27 applies.

As a result of an amendment to section 27 by section 7(3) of the GST Amendment Act 1987, subsection (6) of section 27 was extended to apply in any case where the new subsections (1A) and (1B) of section 27 applied.

Only one off subsections (1)(d), (1A) and (1B) of section 27 can be applicable to a situation at a given time. However, the present wording of subsection (6) requires all three situations occur before it can apply.

Section 13 of the Amendment Act amends section 27(6) to ensure that section 27(6) of the GST Act applies where subsection (1)(d) or subsection (1A) or subsection (1B) applies.

Section 14 - Objection to certain decisions

This section amends section 32(1) of the GST Act to remove the right of appeal against the decision of the Commissioner as to the date on which a six monthly return period is to commence. This amendment makes the legislation consistent with that which applies for two monthly return periods, where no right of objection exists at present.

Section 15 - Persons making supplies in course of taxable activity to be registered

Section 51(4)(b) of the GST Act provides that where a person who is required to register for GST has not done so within 21 days of becoming liable to be registered, that person is deemed to be a registered person with effect from the date which falls 21 days after the person became liable to be registered.

Section 15 of the Amendment Act amends subsection (4)(b) to deem the person to be a registered person with effect from the day on which that person became liable to be registered.

The amendment applies to every person who becomes liable to register for GST on or after the 24th of March 1988, the day on which the legislation was assented to.

Section 16 - Objections to penal tax

Section 70 of the GST Act enables objections to be made in respect of assessments of penal tax. Subsection (2) of this section provides that the provisions of section 33 (dealing with objections) shall also apply in respect of an objection to an assessment of penal tax. However, section 33 does not contain all the provisions that relate to an objection to a GST assessment.

Section 16 of the Amendment Act amends section 70(2) by removing the reference to section 33. This will enable all the provisions of the GST Act that relate to objections to GST assessments to apply to objections to penal tax, the only exception being that in an assessment of penal tax, the burden of proof lies with the Commissioner.

This amendment applies from the 3rd of December 1985.