GST News March 2005 (GST News)

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GST News - 2005

GST News March 2005

GST on fringe benefits
IR3 individual tax returns
Having difficulty paying?
You can receive GST News electronically
GST on imported services - examples

Welcome to GST News

We send this newsletter twice a year, in September and March, to tell you about Inland Revenue services, tax law changes and topical issues relating to GST.

If you have a GST topic you'd like to see covered in this newsletter, please write to the Editor, GST News, PO Box 2198, Wellington or email us at gst.news@ird.govt.nz and we'll aim to cover the topic in a future edition.

Please pass this newsletter on to the person who deals with GST in your business.

GST on fringe benefits

If you are registered for both GST and FBT, you'll have both GST and FBT to pay on most benefits supplied to employees. For example, a company provides an employee with a motor vehicle which is available for both business and private use.

The purchase price and the running costs of the motor vehicle include GST, which the company would claim in its GST returns. The availability of the motor vehicle for the employees' private use is subject to FBT and is also considered to be a supply for GST purposes.

Example

If an employee has private use of a company car during the FBT quarter ending 31 March 2005, you have to show the GST on that fringe benefit in Box 7 of the Fringe benefit tax quarterly return (IR420) for that period. This GST adjustment is payable to Inland Revenue with your FBT for that period.

To calculate the GST amount, the figure in Box 3 of the FBT return (less any fringe benefits that are zero-rated or exempt for GST) is divided by 9 and this is the GST amount to be included in Box 7.

No claims can be made in your GST return as you will already have claimed the GST content of the company car at the time of purchase. Remember the GST you have paid in your FBT return is for private use.

IR3 individual tax returns

Any individual who receives income from self-employment, a rental property, a partnership or withholding payments must file an IR3 individual tax return.

We will send IR3 individual tax returns to people required to file from mid-April to early-May. In May we will also automatically send a summary of earnings showing income information for the tax year to those people who file an IR3 income tax return and also receive income through salary, wages or withholding payments.

IR3 returns are due to be filed by 7 July 2005 for those taxpayers who do not have a tax agent or an extension of time. If you can't file your return by 7 July 2005 and you do not have a tax agent or an extension of time you will need to call us.

If your circumstances have changed and you no longer need to file an IR3 please call us on 0800 227 774 so we can update your records.

If you haven't automatically received an IR3 pack, or are not sure if you need one, go to put in link for information.

Other annual tax returns issued

From mid-May 2005 we will be sending the other 2005 annual income tax returns on to those who require them. These include:

Company income tax returns (IR4)
Estate or trust income tax returns (IR6)
Partnership income tax returns (IR7)
Maori authority income tax returns (IR8)
Club or society income tax returns (IR9)
Registered superannuation fund income tax returns (IR44)

Having difficulty paying?

We realise that at times, some people may be unable to make their payments on time. If you don't think that you can pay the full amount by the due date, please contact us as soon as possible. We will discuss your current circumstances with you and help you work out the best options for paying the amount due. We may consider options such as some form of financial relief, including payment by instalment, if payment in full would result in hardship.

Even if you cannot make the payment, you still need to send in your return. By contacting us before the due date you will avoid being charged the 4% penalty. If you enter into an instalment arrangement with us, no monthly late payment penalties will be charged during its term, provided payments are made by the agreed instalment dates.

Note:
You will still be charged the initial 1% penalty, even if you enter an instalment agreement before the due date and interest will continue to be charged.

You can receive GST News electronically

If you or someone you know would like to receive GST News electronically you can subscribe to it at (see Our publications - Newsletter and bulletins)

Simply give us your email address in the box provided and click the "OK" button.

If you have an email address but do not have internet access, email us on gst.news@ird.govt.nz and we will subscribe for you.

We'll still continue to send you the printed version of GST News.

GST on imported services - examples

In our September 2004 GST News, we had articles on the two changes to GST that came into effect from 1 January 2005:

GST on imported services, and
Zero-rating of business-to-business supplies of financial services.

GST on imported services

From 1 January 2005, GST will apply to services that are imported to New Zealand. This means that if you are receiving imported services from an overseas supplier you may need to account for GST on the cost of the services. This is the "reverse charge" mechanism. The reverse charge requires you to add GST (12.5%) to the price of the services you have received.

We have since had some queries about GST on imported services. We have included some examples to help clarify how this will apply.

Reverse charge and exempt supplies
Example 1 The operation of the reverse charge

An offshore computer company makes a supply of programming services to a New Zealand life insurance company. The life insurance company makes solely exempt supplies of services. It is charged $1 million for the programming services, which it pays on receipt of the services. An invoice is provided after payment is made. The two companies are not associated persons.

In this situation:

The services are supplied by a non-resident supplier to a resident recipient.
The services are acquired by a person who has not in the last 12 months made (and does not expect in the next 12 months to make) supplies of which at least 95% in total are taxable supplies.
The supply of the services would be a taxable supply if it were made in New Zealand by a registered person in the course or furtherance of their taxable activity.

The New Zealand insurer is required to register for GST if they are not already registered. They are required to account for GST on the value of the supply. The value of the supply is $1 million (the consideration for the supply), so the GST payable is $125,000.

Example 2 When the reverse charge does not apply

An offshore computer company makes a supply of programming services to a GST-registered New Zealand retail company. The retail company makes a mix of 98% taxable supplies of goods and services and 2% exempt supplies of financial services, such as hire purchase, to non-registered consumers. It is charged $1 million for the programming services, which it pays on receipt of the services. An invoice is provided after payment is made. The two companies are not associated persons.

In this situation:

The services are supplied by a non-resident supplier to a resident recipient.
The services are acquired by a person who has, in the last 12 months made (and does expect in the next 12 months to make) supplies of which at least 95% in total are taxable supplies.

Therefore the supply is not subject to the reverse charge because the New Zealand retailer makes taxable supplies in excess of the 95% threshold.

Kathleen Clement
Manager
Delivery, Planning and Initiation