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GST on special supplies (q - z)

Repossessions

In hire purchase arrangements, goods are usually repossessed and resold if the buyer does not keep up the payments. The original buyer (not the repossessor) is considered to supply the goods to the new purchaser if there is a forced sale.

If the goods that are sold are used in a taxable activity, GST must be accounted for when they are sold after repossession. To account for the GST, you'll need to file a special Goods and services tax return for goods sold in satisfaction of debt (IR373).

Example

Gordon sells a $1,380 fridge on hire purchase to Bridget for her restaurant. Gordon accounts for GST of $180 ($1,380 x 3 divided by 23) in the return covering the period in which the agreement was made.

Bridget does not keep up the payments.

Gordon repossesses the fridge and sells it again. He then files a special return for goods sold in satisfaction of debt. The sale after repossession, and the GST to be accounted for on it, is considered to be made by Bridget.

If Gordon used an agent, Tim, to repossess the fridge, Bridget would still be considered to be making the sale and responsible for accounting for GST on it.

The agreement between Gordon (original vendor) and Tim (the agent) would determine who files the special return for the resale of the fridge.


Important - GST rate change affecting time of supply

Time of supply is the earlier of when an invoice is issued or any payment is received. The repossessed goods are accounted for in the period when the good(s) are sold and the GST rate is determined by when the good(s) are sold.

Using the example above, Gordon sells a $1,380 fridge on hire purchase to Bridget for her restaurant on 16 May 2010. Gordon accounts for GST of $153.33 ($1,380 / 9) in the return covering the period in which the agreement was made.

Bridget doesn't keep up the payments. Gordon repossesses the fridge and sells it again on 15 October. He then files a special return for goods sold in satisfaction of debt. The GST rate that would be applied is 15%.

The sale after repossession, and the GST to be accounted for on it, is still considered to be made by Bridget.

Road user charges (RUC)

For RUCs, time of supply occurs when any payment is made to the New Zealand Transport Agency or one of their agents. The supply is accounted for in the period when the payment is made.


Important - GST rate change affecting time of supply

Glen purchases 10,000km of RUC for future use at NZ Post on 20 September 2010, so the GST on this purchase would be 12.5%.

Amy purchases 5,000km of RUC for future use at NZ Post on 10 November 2010, so the GST on this purchase would be 15%.

Sale of interest in a taxable activity

If persons are members of an unincorporated body, such as partnership, joint venture or trust, it is the organisation that is the registered person and not the individual members.

Therefore, if a member sells an interest in the organisation, there are no GST implications. It's a private transaction between two persons and not a taxable supply.

Secondhand goods

For GST, secondhand goods are goods previously used and paid for by someone else. It doesn't include:

  • new goods
  • primary produce (unless previously used)
  • goods supplied under a lease or rental agreement
  • livestock
  • secondhand goods consisting of any fine metal of any degree of purity.

Land is considered to be secondhand goods.

The same rules for GST and tax invoices apply to secondhand goods as for all other goods liable for GST. For more information on how and when to account for GST see the section "Methods of accounting".

Secondhand goods if seller is not GST-registered

If the seller is not registered for GST or the goods are private (exempt), there will be no tax invoice or GST charged. However, if the purchaser is GST registered they can claim a credit for GST purposes.

Regardless of the accounting basis you use, you must make a payment before you can claim the credit for the purchase.

In these cases the purchaser must record:

  • the name and address of the supplier
  • the date of the purchase
  • a description of the goods
  • the quantity of the goods
  • the price paid.
Note

You'll also need to keep details of the transaction if you are going to make a claim for income tax purposes.

Exported secondhand goods

From 6 October 2009 if you claim a GST input credit for secondhand goods you've bought and later export these goods, you will not need to account for the GST input credit you’ve claimed when the exported secondhand goods are sold if all of the following conditions are met:

  • the goods are entered for export
  • the goods leave New Zealand within 28 days of the time of supply, and
  • the recipient provides a declaration (for example, in the sale and purchase agreement or other sales document) at or before the time of supply that neither they nor an associated person will cause the goods to be re-imported to New Zealand in substantially the same condition in which they were exported.

Successive supplies and progress payments

The time of supply is the time when a progress payment was made or when an invoice was issued, whichever was earlier.

The goods or services must be either:

  • supplied progressively or periodically, and paid for in the same way, or
  • supplied directly in constructing, manufacturing or extending a building, or civil engineering work, with payments made periodically as the work progresses.

If you receive progress payments and you use the invoice or hybrid basis, account for the GST in the earliest taxable period that a payment is due or received, or issue an invoice for that payment only.

For the payments basis, account for GST when you receive any payments.

If you are making progress payments under the invoice basis, you may claim a GST credit in the earliest taxable period that a payment is due, or you make a payment, or you receive a tax invoice for that instalment.

For the payments and hybrid basis you claim a credit in the taxable period in which you make a payment.


Important - GST rate change affecting time of supply

For a progress payment received or invoiced after 1 October 2010, the rate of GST will be 15%.

Example: We Make Roads Ltd wins a tender to build a new road linking two suburbs for a local council on 1 June 2010. The work will take eight months. We Make Roads Ltd will invoice the council for work performed every month during the construction period. From 1 October 2010 the company will have to ensure that all progress payments for the contract are at the 15% GST rate.

Supplies to associated persons

Special rules apply if you make certain supplies to people closely associated with you such as relatives, or closely connected associated companies or trusts.

Supply to registered associated persons

If you supply goods or services to an associated person who can claim a GST credit for the purchase, you account for GST on the amount received.

Example

Jones and Jones, a GST-registered partnership sells a piano to Dawn, a sister of one of the partners. Dawn is registered for GST and can claim a GST credit on the purchase.

The open (current) market value of the piano is $2,000 but the sale is for $1,500. The partnership accounts for GST of $195.65 ($1,500 x 3 divided by 23).

Supply to unregistered associated persons

If you supply goods or services to an associated person who cannot claim a deduction, you must determine the open (current) market value of the supply and account for the greater of the market value, or the amount you charged, in your return.

Example

If Dawn (see previous example) was not registered for GST, the partnership would account for GST of $260.87.

This is the $2,000 market value multiplied by three then divided by twenty-three.

Include transactions with associated persons in the return for the taxable period in which you made the supply. However, if you receive payment or issue an invoice before the last date for filing that return, the date of payment or invoice determines which taxable period the supply falls in, depending on your accounting basis.

Example

A partnership has a two-month taxable period. The return for the period ended 30 April is due on the last working day of May.

The partnership supplies goods with an open (current) market value of $115 to a non-registered brother of one of the partners on 24 April and receives payment of $100 on 16 June. The partnership will account for $15 GST (on the market value of $115) in the return for the taxable period ended 30 April, as this is the period in which the supply was made.

If the partnership had issued an invoice or received payment during May (before the April return was due to be filed), the $15 GST would be included in the return for the taxable period ended 30 June. This is because the invoice or payment would fall in the June period.

Time of supply between associated persons

For the invoice basis, claim a deduction in the return for the taxable period in which the supply is made available, removed or performed. However, if you make payment or receive a tax invoice before the last date for filing that return, the date of payment or invoice determines the taxable period.

If you use the payments or hybrid basis, claim the GST as you make payments as usual.


Important - GST rate change affecting time of supply

Time of supply is when:

  • goods are removed or made available to a recipient
  • services are performed.

If payment is made or an invoice issued before any of these happens, then the general time of supply rule applies. If the time of supply is performance, it's accounted for in the period this occurs in. This determines the rate which applies to all customers who are associated persons.

Example: John and Carol are associated persons. John supplies Carol with business cleaning services which were performed on 10 September 2010. John does not supply Carol with an invoice until 20 October 2010. Both John and Carol account for GST of 12.5% on the service on the return which covers the September 2010 period.

If Carol paid for the service on 30 August 2010 then both John and Carol would account for the GST on the return which covers the August 2010 period.

Example: Richard and Shane are associated persons. Richard supplies Shane with some goods that are available for Shane to pick up from 10 October 2010 at Richard's warehouse. Shane picks up the goods on 15 October 2010. The rate of GST that will apply will be 15%. The time of supply will be 10 October 2010 as this is the date they are available. Both Richard and Shane would account for the GST on the return which covers the October 2010 period.

If Richard supplied an invoice to Shane for the goods on 15 September 2010 when the agreement to buy occurred, the time of supply would be 15 September 2010 and the GST rate that would apply is 12.5%.

Supply (transaction) of greater than $225,000

Regardless of the accounting basis the transaction must be accounted for using the invoice basis.

Important - GST rate change affecting time of supply

The general time of supply rule applies.

Example: Suraya is registered for GST and accounts using the payments basis. She sells a fishing boat on delayed settlement terms for $350,000 on 15 September 2010. The invoice is dated the same date. A deposit of $50,000 is paid on 15 September 2010. Suraya must account for the full amount of GST ($350,000 ÷ 9 = $38,888.89) in the return period covering September 2010.

One exemption to this rule is if the transaction relates to "short term agreements for the sale and purchase of property or services". To be a short-term agreement, the general rule is that settlement must take place, or services must be performed, within 365 days of the date the agreement is entered into.

Example: Jim is selling a commercial property on 1 September 2010 with a settlement on 1 March 2011. Jim uses the payments basis to account for GST. He can continue to account for the sale on a payments basis in March 2011 instead of having to account for it now at 12.5% if he were on an invoice basis.

Tenders

A registered person may invite tenders for a future supply of goods or services. It is a good idea if the advertisement states whether the tenders should include GST, so both parties know whether to allow for GST in the tender amount.

Occasionally the person making a tender will have to pay a deposit. There is no GST on such a deposit unless all or part of it is kept for some reason.

Tokens, stamps and vouchers

There are special rules for the sale of gift vouchers, postage stamps, milk tokens and the like. The supplier should treat tokens, vouchers and stamps as a supply for GST purposes at the time a customer buys them.

The law recognises that it may be impractical to return the GST at the time when the customer buys a voucher. Instead, the GST could be accounted for when the customer actually exchanges the voucher for the monetary value of the goods or services purchased, where the supplier of the voucher and supplier of the goods or services agree.

Example

A petrol station owner sells an oil company's $20 petrol voucher to a customer. The petrol station owner collects the $20 on behalf of the oil company, and forwards that money to the oil company.

The customer gives the voucher to a friend who buys petrol at another petrol station. Here, there is an agreement between the petrol stations to return the GST on redemption of the voucher. The second petrol station tells the oil company they have sold petrol (goods) in exchange for a $20 petrol voucher.

The oil company reimburses the second petrol station owner for the sale, who then accounts for the GST on the $20 by including the total amount of the sale in Box 5 of their GST return.

The redemption option doesn't apply to postage stamps and vouchers sold to a non-resident for services performed in New Zealand. The supplier has to account for GST on these items when the customer buys them.

Note

Buying tokens, stamps and vouchers can be claimed as an expense at acquisition according to your accounting basis.


Important - GST rate change affecting time of supply

The supplier should treat stamps, tokens or vouchers as a supply for GST purposes at the time a customer buys them. Generally, a supply takes place when tokens, stamps and vouchers are issued, not when the vouchers are redeemed.

Example: Peter buys a $50 voucher from Soundz in Wellington on 15 September and gives this as a gift to Jonathan in Auckland. Jonathan buys CDs with the voucher at Music Time in Auckland on 1 November. The supply takes place when Peter buys the voucher and Soundz accounts for the sale at a GST rate of 12.5% on the return which covers the September period.

There are circumstances where the issuer of the voucher and the supplier of the goods or services can agree to recognise the supply on redemption of the voucher.

Example: Soundz stores nationwide which are independently owned but affiliated, agree that the time when a store reimburses another store for redeeming a voucher, is when a supply takes place, rather than when the voucher is sold. Music Time would account for the sale at the GST rate of 15% on the return which covers the November period.

The redemption option doesn't apply to postage stamps and vouchers sold to a non-resident for services performed in New Zealand. The supplier has to account for GST on these items when the customer buys them.

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Date published: 29 Sep 2010

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