Registering for GST under section 54B
This week’s AWIR is dedicated solely to GST, as well as two interpretation statements, one finalised and one released in draft form, the latter of which covers a critical element of the former. The finalised interpretation statement is IS 21/03 GST – Registration of non-residents under section 54B.
Section 54B was introduced in 2013, as a mechanism to remove the economic cost for non-resident businesses who were acquiring goods and/or services in New Zealand, for the purpose of making supplies outside of New Zealand. While the non-resident business could potentially register for New Zealand GST under section 51 (standard registration), the ability to recover the GST input tax incurred was limited, because the legislation only allows a deduction for input tax for goods or services to the extent that those goods or services are used for, or available for use, in making taxable supplies – being supplies made in New Zealand.
IR’s basis for releasing IS 21/03, is due to an awareness that the eligibility criteria to register under section 54B is not well understood.
To assist in this regard, IR suggests there are seven components to the section 54B criteria that you need to walk-through (although increased to nine components depending on the answers to a couple of the components):
- The person must be a non-resident for GST purposes,
- The person is not liable to be registered under section 51,
- The person is registered for a consumption tax in the country or territory in which they are resident, or the level of their taxable activity would require them to register in New Zealand if they were carrying on that activity in New Zealand,
- The amount of the person’s input tax exceeds $500, or the person is likely to be liable for tax levied under section 12(1) in relation to imported goods received by another person or that are to be delivered to another person,
- The person’s taxable activity does not involve the performance of services where those services will be received by an end-user in New Zealand,
- The person is not making or intending to make taxable supplies in New Zealand, or the person is not making supplies to an unregistered person that would be taxable supplies if the supplier was registered; and,
- The person is not a member, or intending to become a member, of a group of companies that make supplies in New Zealand.
IS 21/03 works its way through each of the components, although with not a lot of detailed analysis I would suggest, often referring to other IR publications you will then have to track down, and with some fairly basic examples. There are a few flowcharts throughout the document which may certainly assist in at least pointing you in the right direction to obtain the right answer for your client.
My take-outs for you:
- Understand the ‘person is not liable to be registered under section 51’ component, which in the first instance suggests if your clients New Zealand supplies are less than the $60,000 compulsory registration threshold, then they could utilise section 54B, with the ‘person is not making supplies to an unregistered person that would be taxable supplies if the supplier were registered’ component, which will act to negate such utilisation. So here your client would instead need to voluntarily register under section 51 and charge GST on the supplies to the unregistered persons to recover their New Zealand GST input tax costs.
- Be wary of the New Zealand Customs GST issue. If your client is importing the goods into New Zealand for delivery to another person, and incurring the GST charged by New Zealand Customs accordingly, there are deeming rules which state that it is the recipient of the imported goods that has incurred the Customs GST and not your client for the purpose of section 54B. Consequently, your client would need to register under section 51 instead and then have an agreement with the New Zealand GST registered customer that the supply of the goods and services will still be deemed to be made in New Zealand – subject to New Zealand GST.
- Ensure you understand the exact contractual arrangements entered into and identify exactly what is being supplied. Who is making the supply and who is receiving the supply is required to determine where a supply is treated as being made. For example, your non-resident client could be making a supply to another non-resident client, but the goods relating to that supply could be in New Zealand, or services performed in relation to that supply could be supplied by another person who is in New Zealand, at the time of supply, thereby deeming the supply to actually have been made in New Zealand, which could instead trigger a requirement of your client to register under section 51.
GST – resident definition
The GST draft interpretation statement which has been released by IR, and one that now ties in very nicely with the first component of IS 21/03, is PUB00390 – GST – Definition of a resident.
The key take-out of this article, is gaining an appreciation (if you do not already have it) that the definition of a resident for GST purposes, is not the same as the income tax residency definition. In this regard, there are three distinct differences.
In the GST definition of ‘resident’:
- It is extended to include a person who has a ‘fixed or permanent’ place in New Zealand, where that place is related to a taxable activity carried on by the person in New Zealand,
- For unincorporated bodies, it provides for a residence test based on its centre of administrative management; and,
- For individuals, the definition differs for the commencement and end dates of residency when applying the day-count test.
The definition of ‘resident’ for GST purposes is essential to understand, when you appreciate that the legislation then deems all supplies made by a resident to ‘be made in New Zealand’, and equally all supplies made by a non-resident to ‘be made outside of New Zealand’.
For a non-resident client, the starting position of all supplies ‘being made outside of New Zealand’, then has a number of subsequent legislative provisions which may ultimately change that starting position, to a scenario where the supply is deemed to ‘be made in New Zealand’ – with the obvious potential consequences for your client.
Akin to the previously discussed IS, this one also steps its way through each of the three bulleted items.
In relation to the first difference between the residency tests, note that ‘fixed or permanent’ place in New Zealand contains a ‘taxable activity’ or ‘other activity’ analysis requirement, also a ‘to the extent that’ phrase. So, you need to consider all activities being undertaken in New Zealand by your client, and it is possible for your client to be considered both ‘resident’ and ‘non-resident’ for GST purposes.
With respect to the unincorporated bodies definition, the ‘centre of administrative management’ test is a factual enquiry that focuses on where the day-to-day management of the unincorporated body is carried out. The Commissioner’s view is that this has a similar focus to the ‘centre of management’ test applied in s YD 2(1)(c) of the ITA 2007 when considering the residency of a company for income tax purposes.
Finally, under the individual’s day count test, it is simply that GST residency or non-residency applies from the 184th day or 326th day (as appropriate) – I would suggest for obvious reasons.
PUB00390 is a 19-page document, the final six pages containing examples to explain the commentary.
Should you wish to have your say, the deadline for comment is 9th July 2021.
This article from the ‘A Week in Review’ newsletter was originally published Tuesday 8th June 2021. If you have any questions or would like a second opinion on any national or international tax issues, please contact me firstname.lastname@example.org.
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