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Technical tax area: Operational positions
The Minister of Revenue has recently announced the Government’s intention to pass legislation to exempt bodies corporate (established under the Unit Titles Act 1972 or 2010) from GST. The proposed law change is intended to avoid the need for unnecessary registration of potentially several thousand bodies corporate and to promote consistency with other forms of residential home ownership.
It is proposed that retrospective legislation will be passed that will:
- exempt supplies between a body corporate and its owners from GST from 1 October 1986; and
- provide transitional provisions that will allow any body corporate that was registered for GST to remain registered until 6 June 2014 (the date of announcement).
When enacted, and with effect from 6 June 2014, no body corporate will be able to register (or be registered) in respect of supplies made to its owners.
As there will be a period of time between the retrospective application date of the proposed legislation and its enactment, it is recognised that there are a number of interim issues that potentially arise.
The following questions and answers set out the Commissioner’s current view, and the operational approach that the Commissioner will be taking to address these issues. Inland Revenue will continue to apply the current law until it is amended. Where possible we will also act consistently with the proposed law, where doing so is not inconsistent with the current law.
However, it must be recognised that until the law is changed there will inherently be some uncertainty. For example, the detail of the proposed legislation may change. It is strongly recommended that any affected body corporate, or other affected taxpayer, seeks advice from a tax professional.
The following FAQ are to provide guidance to taxpayers on Inland Revenue’s interim operational approach.
1. Is Inland Revenue going to finalise its view on whether a body corporate is liable to register for GST?
Inland Revenue previously published an issues paper on whether bodies corporate conduct a taxable activity. The preliminary conclusion in that paper was that the levies imposed by bodies corporate are consideration for a taxable supply. Comments were received that both agreed and disagreed with that view.
The Government is now proposing to clarify the law. Therefore, Inland Revenue has adopted the view expressed in the issues paper, but subject to the interim operational position previously published.
Inland Revenue’s view is that a body corporate is entitled to register for GST if it receives levies from unit owners. If the body corporate is making taxable supplies of more than $60,000 per year, it is required to register for GST. Consistent with our previous interim operational position, we will not require any specific body corporate to register.
Already GST registered before announcement
2. Once the law is amended, will all GST registered bodies corporate be deregistered?
The effect of the proposed law change is that goods or services that are supplied by a body corporate “under a power or duty of the body corporate as set out in section 84 of [the Unit Titles Act 2010]” will be exempt supplies. Therefore, a body corporate that only makes such supplies will not be conducting a taxable activity and will be deregistered.
However, if a body corporate is making other supplies (for example, renting car parks to third parties), it may still be liable to be registered (and remain registered). Alternatively, the body corporate will be able to voluntarily register in respect of such supplies.
3. My body corporate is currently registered. Does it have to continue filing GST returns?
If the body corporate is already registered for GST and is liable to be registered for GST, it is required to continue to comply with its obligations (including charging GST on supplies it makes and filing GST returns).
However, if a body corporate voluntarily registered for GST, and is not required to be registered for GST (i.e., the body corporate’s taxable supplies are less than $60,000), it may choose to deregister. If you wish to deregister, you will have to contact Inland Revenue.
4. Can I keep filing GST returns, and get GST refunds, despite the announcement?
Until the Government’s proposal is enacted, a body corporate that is registered for GST can keep filing GST returns and can claim any refunds that it is due. However, if the Government’s proposal is enacted, all bodies corporate will be deregistered from 6 June 2014 and any refunds arising after that date will be required to be repaid.
5. If the body corporate remains registered and keeps charging GST on its levies, will Inland Revenue refund the GST the body corporate has charged its owners (output tax) once the law is changed?
If a body corporate stays registered, it will have to keep charging GST on the supplies that it makes, usually the body corporate levies.
If the proposal is enacted, a body corporate that has only been making exempt supplies will be deregistered with effect from 6 June 2014. This will mean that the supplies made by the body corporate will, retrospectively, not have been liable to GST. However, as GST will have been charged on the levy imposed by the body corporate, technically, but only retrospectively, GST will have been charged by an unregistered person.
Normally, when GST is charged by an unregistered person, Inland Revenue requires that GST to be paid to Inland Revenue, as otherwise it results in a windfall gain to the person who has charged GST, as it is unlikely to be returned to the recipients of the supply. In this case, the GST will already have been paid to Inland Revenue, and therefore should be retained by Inland Revenue and not refunded.
However, in this case the nature of the body corporate should be recognised. If the GST output tax is returned to the body corporate, it is effectively being returned to the members of the body corporate, the owners, who paid the output tax. Therefore, there is unlikely to be a windfall gain to the body corporate.
It is therefore intended that when any GST returns are amended, both the output tax accounted for by the body corporate in respect of the levies and any input tax claimed, will be reversed. If this gives rise, overall, to a refund for the body corporate, it will be paid by Inland Revenue.
6. If the body corporate remains registered and keeps charging GST on its levies, will it have to refund to its owners the GST it has charged to its owners, once the law is changed?
Whether or not the body corporate refunds an amount that it has charged its owners is a matter between the body corporate and those owners.
7. My body corporate is already registered, from a date after 1 April 2010. Do we have to backdate our registration to 1 April 2010?
If you are happy with your current registration date, it does not have to be changed.
Under the Government’s proposal, a body corporate can choose to have its effective date of registration back-dated to either the first day of their first taxable period that occurs after 1 April 2010 or the date it first became liable to be registered, whichever is the later.
8. My body corporate was first registered on a date after 1 April 2010. Can its registration now be backdated to an earlier date?
Yes, you may be able to choose to backdate the registration.
Inland Revenue’s previous interim operational position was that it would not backdate an existing GST registration, or apply a new registration from an earlier date.
However, Inland Revenue has reconsidered that position and, consistent with the Government’s proposal, Inland Revenue will, if requested, backdate an existing GST registration to the later of:
- the first day of the body corporate’s first taxable period that occurs after 1 April 2010; or
- the first day on which the body corporate is liable to be registered under section 51(1) of the GST Act.
If a registered body corporate wants to have their registration backdated, it will have to contact Inland Revenue. Once the registration is backdated, the body corporate will have to furnish all outstanding returns and pay any GST that is due.
If the body corporate was voluntarily registered (that is, it is not liable to be registered under the GST Act), Inland Revenue will not back-date its GST registration. This is because the proposed amendments will only apply to bodies corporate that were liable to be registered.
9. My body corporate has been registered from a date earlier than 1 April 2010. Do we have to change our registration date?
Existing registrations from an earlier date will not be changed.
10. If my body corporate gets a GST refund for a period after the announcement, will it have to pay it back if the proposed law is passed?
If the law is changed as proposed, the body corporate will be deemed to have made exempt supplies. If the body corporate only made exempt supplies, then it will be deregistered with effect from 6 June 2014 and will have to repay any GST refunds it received after that date.
If the body corporate made other taxable supplies, it will need to furnish amended GST returns for the period after 6 June 2014.
11. If I have to repay a refund, will I have to pay use of money interest?
If the law is changed as proposed, and refunds have to be repaid, use of money interest will be payable.
However, Inland Revenue will consider any requests that it receives for the remission of such interest under section 183D of the Tax Administration Act 1994. While it is not possible to say in advance how such requests would be decided, if a body corporate that was registered before 6 June 2014, and is unable to be deregistered until the law is changed, has a retrospective liability to repay GST as a result, then remission of the interest is likely to be considered favourably.
Inland Revenue will pay interest on any overpayments that arise as a result of amending assessments.
12. If I have to repay a refund, will I have to pay late payment penalties?
When an assessment is amended and tax is to be paid, time is given to repay the amount before late payment penalties apply. This is at least 30 days.
Therefore, so long as the amount is paid within the time allowed, late payment penalties will not apply.
13. My body corporate is registered for GST. Can we now deregister with effect from the date of announcement?
Inland Revenue will not deregister a body corporate that is liable to be registered under the current law (that is, the law that applies until the Government’s proposal is enacted).
However, if a body corporate is not required to be registered, that is, it is voluntarily registered, it may apply to deregister at any time.
Tax consequences may arise from deregistering, so advice should be sought from a tax professional.
14. If I deregister my voluntarily registered body corporate, will I have to pay output tax on the assets owned by the body corporate?
When a registered person ceases to conduct a taxable activity, any assets or other goods that were part of the taxable activity, that are retained, are deemed to be supplied to the registered person. This means that any assets owned by the body corporate will be deemed to be provided to the body corporate and subject to GST.
This could include common property, and any other goods that the body corporate has acquired and still holds. This will not include the individual units or flats, as they are property owned by the members of the body corporate, rather than the body corporate itself.
It should be noted that this potential liability is a matter that the Government’s discussion document is seeking specific comment on.
15. If my body corporate doesn’t de-register with effect from 6 June 2014, what will my body corporate have to do once the law is changed?
If the Government’s proposals are enacted, there are a number of actions that will need to be taken.
If, once the proposals have been enacted, the body corporate has only been making exempt supplies, the body corporate will need to contact Inland Revenue and request that the body corporate be deregistered with effect from 6 June 2014.
If, once the proposals have been enacted, the body corporate has been making both exempt supplies and taxable supplies, the body corporate will need to contact Inland Revenue and provide sufficient information to allow Inland Revenue to amend your GST returns.
The proposals do not alter liability to interest and late payment penalties, so they will apply in accordance with the existing rules.
Deregistration may result in GST being payable by the body corporate as a result of the retention of assets. Whether this occurs will depend on the circumstances of that body corporate.
Not registered before announcement
16. My body corporate has never been registered for GST. Do I now have to register for GST?
Inland Revenue will not require any body corporate that is not registered to now register. This is consistent with Inland Revenue’s interim operational position published on 8 May 2013.
17. My body corporate is not registered. Can we now register for GST, despite the Government’s announcement?
Yes, however this may lead to a future tax liability.
Inland Revenue’s interpretation of the current law is that a body corporate that receives levies is carrying on a taxable activity. Consistent with Inland Revenue’s interim operational position, a body corporate can therefore choose to register.
If it is enacted, the Government’s proposal means that the body corporate will be deregistered with effect from 6 June 2014 and any GST returns will have to be amended. The body corporate will have to repay any refunds it received after the date of deregistration.
18. If my body corporate registers after the date of the announcement, can we backdate the registration?
If a body corporate registers for GST after 6 June 2014, Inland Revenue will not backdate the GST registration.
This is consistent with both the Commissioner’s current interim operational position and the Government’s proposal.
19. If I register after the date of announcement and get a GST refund for the period after the date of registration, do I have to repay it?
If the law is changed as proposed by the Government, any GST refunds that relate to making exempt supplies after 6 June 2014 will have to be repaid.
Late payment penalties and use of money interest will apply in the normal manner. This will include allowing time to pay any amount that arises from an amended GST assessment.
20. My body corporate sent in an application to register before the announcement, but I haven’t heard from Inland Revenue. Will I be treated as registered for GST prior to the announcement?
If an application to register for GST was received by Inland Revenue before 6 June 2014, it will still be processed, and the body corporate will be registered with effect from the date requested on the application (if Inland Revenue agrees with that date).
GST registered owners
21. I am a GST registered owner of a unit in an unregistered body corporate, and I use the unit in my taxable activity. Am I now able to claim GST input tax incurred by the body corporate?
Currently, a GST registered owner is unable to claim an input tax credit on the levies that they pay to their unregistered body corporate. This is because the body corporate has not charged them GST, but the levy includes the GST incurred by the body corporate. This results in the GST registered person having to meet the cost of GST, but being unable to claim an input tax credit.
Under the Government’s proposals, a GST registered owner will be able to claim their share of the input tax incurred by an unregistered body corporate (to the extent that it is attributable to the owner’s taxable activity).
However, until such time as the law is changed, there is no basis on which such a claim can be made. Once the law is changed, Inland Revenue will publish further guidance. It is expected that a GST registered owner will be able to request that Inland Revenue amend their GST returns, if they are able to obtain sufficient supporting information from their body corporate.
22. I am a GST registered owner in a currently GST registered body corporate. Once the Government’s proposals are enacted, my body corporate will have to deregister from 6 June 2014. What will that mean for the input tax that I have claimed on the GST inclusive levies that I paid?
Under the Government’s proposals, a GST registered owner will be able to claim their share of the input tax incurred by an unregistered body corporate (to the extent that it is attributable to the owner’s taxable activity). If a body corporate is retrospectively deregistered, this will mean that no GST was properly payable on the levy, and therefore should not be claimed as an input tax credit by the GST registered owner.
However, as the owner will still be entitled to claim their share of the GST paid by the body corporate during the period, it is not intended to require the GST registered owner to amend their GST returns for the periods between 6 June 2014 and the date on which the body corporate is deregistered.
Other pages in: Operational positions
- Commissioner’s operational position on QB 17/09 - Is there a full or partial disposal when an asset is contributed to a partnership as a capital contribution?
- Commissioner’s interim operational position on calculating PAYE on non-resident seasonal workers’ holiday pay
- Commissioner's operational position on Veterans' Weekly Compensation/Weekly Income Compensation and tax codes
- Commissioner’s operational position on horse racing syndicates incorrectly registered for GST
- Commissioner’s operational position on tax residence
- Commissioner’s operational position on deducting expenditure on gifts of food and drink
- Commissioner’s operational position on unit trusts - When a unit trust can have a single unit holder
- Commissioner’s operational position on calculating PAYE on holiday pay
- Commissioner’s operational position on FBT and car parks
- Commissioner’s operational position on "development or division work" not of a minor nature for section CB 12 purposes
- Commissioner’s interim operational position for tax pooling transfers of use-of-money interest
- Commissioner’s operational position on what is "significant expenditure" for section CB 13 purposes
- Commissioner’s operational position on foreign tax credits for amounts withheld from United Kingdom pensions
- Tax Residence – transition operational position
- Income tax – deductibility of expenditure incurred in borrowing money – section DB 5 – transitional operational statement
- Commissioner’s interim operational position on GST registration by Bodies Corporate