Kia ora everyone and welcome to this webinar. Today we will be covering off some other changes for GST. My name is Patrick Sawyer and with me today is Rian Shearman. We are both External Relationship Managers at Inland Revenue.
Today I’ll be taking you through:
- the proposed changes to the apportionment and adjustment rules,
- clarifications for business-to-business compulsory zero-rating of land rules, and
- a couple of other smaller proposed GST changes that come into effect on 1 April.
The information in this presentation is current as at 2 March 2023.
Let’s start with the apportionment and adjustment rules.
There are several proposed changes to the GST apportionment and adjustment rules.
These are intended to reduce compliance costs and better align the rules with current practices.
The changes will also mean that Inland Revenue will be able to agree to alternative apportionment methods, that are fair and reasonable, with GST-registered persons and publish other acceptable methods.
The first change to mention, is that there will be a new principal purpose method for goods and services that are acquired on or after 1 April 2023 and have a value of $10,000 or less (GST exclusive).
The method will allow you to claim the full GST amount when, the principal purpose of acquiring the good or service, is making taxable supplies.
You can choose to continue to apportion assets purchased for $10,000 or less based on the extent they are used to make taxable supplies, instead of using the principal purpose method.
If you choose to continue to apportion assets, this option will remain in effect for a minimum of 24 months for all goods and services.
The next change relates to GST adjustment periods.
Currently, you need to adjust the GST claimed if the amount of taxable use of a good or service changes by more than 10%, or if the amount of the adjustment required is more than $1,000.
To do this, you need to review the taxable use over an adjustment period and the number of adjustment periods you need to review the taxable use for, depends on the GST-exclusive cost of the asset.
From 1 April, the adjustment period value thresholds will increase – as shown in the table.
These increases will mean that the period of time that you need to monitor assets for will be reduced, and fewer adjustments will be required.
I’ll give you a few more seconds to look through the table. Ok, let’s move on and look at treating a sale as a non-taxable supply.
From April, you will be able to elect to treat goods that were not acquired or used principally for making taxable supplies as non-taxable when they are sold or disposed of.
This is unless you have already claimed GST deductions for the asset, or if you have claimed GST deductions, you can repay any GST previously claimed, before 1 April 2025, to satisfy this condition.
Or unless the asset was acquired as zero-rated, either as a going concern or consisting of land. To satisfy this condition, you can return the nominal GST amount, in your next return.
This election is expected to be used for dwellings which have a small amount of taxable use such as farmhouses or home offices. The proposed change applies retrospectively and is likely to reflect typical GST practices for these types of dwellings.
There are also proposed changes to the wash-up rule.
From 1 April a wash-up calculation can be completed for any permanent change in use at the end of the adjustment period (the income year) that the change occurs in.
This will mean you can claim a deduction for increased business use of an asset sooner and in more situations.
Previously, wash-up calculations could only be completed at the end of the adjustment period that followed the adjustment period that the change occurred in – this meant it was more than a year later, and only if the use of the asset changed to either fully taxable or fully non-taxable use.
The final proposed change for apportionment relates to the sale or disposal of assets.
If you sell or otherwise dispose of an asset you have previously claimed GST for you will need to account for GST on the sale or disposal, unless you have already returned the GST claimed or nominal GST component of zero-rated acquisitions. This applies whether the asset was used in your taxable activity or not. It will also apply if you cease to conduct a taxable activity or deregister from GST.
If Inland Revenue considers that a GST-registered person has artificially increased their non-taxable use and made a change in use adjustment in anticipation of sale or disposal, the sale or disposal will need to have GST accounted for.
I will now hand you over to Rian.
The GST compulsory zero-rating of land rules apply to supplies that are wholly or partly of land, provided they are:
- between 2 GST-registered businesses,
- intended for use in making taxable supplies, and
- not intended as a principal place of residence for the recipient or their close family members.
Some of these rules are being clarified or amended to ensure they work as intended.
Supplies wholly or partially consisting of the grant of a lease of land can be zero-rated provided they meet the requirements for zero-rating. This is intended to capture the situation where the purchase of business assets by a GST-registered person is made conditional on the grant of a lease over the business premises.
Only irregular payments made pursuant to a lease agreement and totalling more than 25% of the total lease agreement are zero-rated. All regular payments under the lease agreement will have GST charged at the standard rate of 15%.
And finally, we’re clarifying the application of a special rule that requires the recipient of a supply to pay the GST that should have been charged. This rule will only apply in situations when it’s found that zero-rating has been applied incorrectly due to the recipient providing incorrect or insufficient information.
There are a couple of other, smaller, changes for GST – I’ll quickly go through the list now.
Voluntary administrators will be liable for the GST obligations of the GST-registered person during the period of voluntary administration.
Public authorities will be required to account for GST when they receive government grants and subsidies.
Unincorporated joint ventures and their members will be defined as “associated persons” for GST purposes.
That brings us to the end of today’s presentation. Thank you for watching.
If you want to find out more about the other webinars we’re going to be running, go to www.ird.govt.nz/aprilchanges
If you have any questions about our webinar, please email [email protected]