GST, an issue for retailers, immigration advisors

In a welcome development, the Inland Revenue Department (IRD) has released an Issues Paper, discussing the GST treatment of corporate companies.

There has been a longstanding uncertainty as to whether a body corporate can register for GST. This has led to inconsistent treatment – some corporates have registered for GST, while others have not done so.

Interim choice

The Issues Paper sets out the interim view of the Department that a body corporate can register for GST on the basis that it carries on a taxable activity in the form of supplying services (for example, maintenance of common property) to owners of a unit title development. A body corporate is not merely an agent or a conduit arranging services; or just a collection body. As a temporary measure, until the position is finalised, IRD would consider that (a) A body corporate is not required to register for GST, irrespective of whether it exceeds the GST registration threshold and (b) A body corporate may voluntarily choose to register for GST.

IRD has called for submissions on the matter. A body corporate, considering registering for GST, should ensure the GST consequences are fully understood.

Online Shopping

The New Zealand retailing sector has continued its vocal support for abolition of a low-value added threshold applicable before GST and duty are calculated.

The sector saw the Government’s 2013 Budget as a missed opportunity to remove the concession and impose GST on all forms of offshore online shopping (regardless of the value).

This raises the classic tension between tax policy (of imposing GST on all supplies of goods) and the costs of collection.

Common problem

This issue is not unique to New Zealand.

In the past six months, other countries, including Australia and the US, have been grappling with this issue. While the Australian Government is still considering its position on the current A$1000 GST-free threshold, the US has gone further with the Senate voting in favour of passing the Federal Marketplace Fairness Act.

If passed, the legislation will require all retailers selling goods or services valued in excess of US$ 1 million, regardless of their location, to remit sales tax. A physical presence by a retailer in the US will no longer be required.

These changes will mean that internet sellers will no longer be able to avoid charging sales tax to US customers due to their lack of physical presence.

The proposed changes in the US demonstrate the ability of a Government to impose taxes (similar to GST), on sellers who do not have a physical presence in the country in which the buyer is situated.

These overseas developments are no doubt being followed closely by the business community, consumers and policy makers in New Zealand. The impetus is growing, and a workable solution is in sight.

Immigration matters

IRD has also released an Issues Paper regarding the treatment of GST in the case of immigration and other services provided to non-residents. It seeks solutions to two potential problems identified as ‘Zero-rating Rules’

Currently, services provided to a non-resident may be zero-rated, provided that the following requirements are satisfied: The recipient of supply is a non-resident at the time of service delivered; the recipient was outside New Zealand when the service was delivered; and that the services were not supplied directly in connection with any New Zealand land or moveable personal property situated in New Zealand.

The services are not an acceptance of an obligation to refrain from carrying on a taxable activity, to the extent that it would have occurred within New Zealand.

Failure to meet these requirements would result in the services being standardrated for GST purposes, unless it is possible to apportion the supply.

Practical problems

IRD has concerns over the practical application of the first two requirements. It may not always be practical for a supplier to have knowledge of the whereabouts of a non-resident consumer when the services are supplied, and therefore may not be able to determine if zero-rating is applicable.

The retrospective application of the residency rules for income tax purposes could result in a previous zero-rated supply becoming subject to standardrating. This situation could arise when a person’s residency is backdated to their first day of arrival in New Zealand.

Suggested Solution

IRD is proposing to allow services to non-residents to remain zero-rated even when the non-resident visits New Zealand during the period of service, provided that the visit is not in connection with the services performed.

It is also proposed that the retrospective application of the tax residency r

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