Tax Bill introduced
Last week saw the introduction of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Bill, and for once, I’m quite excited, if it’s possible to use such words when one is referring to a proposed new legislation?
Why would that be you may ask (or perhaps you’ll just think I’ve been in lock-down for too long)? Well, post the recent frustrations of the increased bright-line period to ten years and the interest deduction limitation proposals, a fair number of the amendments to be affected by the Bill are actually taxpayer friendly.
While the draft legislation includes both income tax and GST amendments, it’s the latter that has really got me buzzing (I’m sure there’s a more of a ‘hip’ word for it now, but I’m still old school), and will be the sole focus of my narrative here.
Amendment number one – ok so, this one hasn’t really got me excited, but I thought I should include it regardless, is the clarification that crypto-assets are neither subject to GST nor the financial arrangement rules. However naturally where crypto-assets themselves are used to acquire good or services, those latter transactions will still have GST consequences.
Amendment number two – now this is a real goody. Presently, if you use an appreciating asset (most commonly land), for both taxable and non-taxable use, when you go to dispose of that asset, your input tax claim is limited to the GST content of the original purchase price – so you are effectively over-taxed. To explain, you buy an asset for $11,500 which you use from the outset 25% for private use. In your first GST return you only claim an input tax deduction for $1,125 therefore, and then because the use is consistent for the next three years, no further adjustments are required. You then dispose of the asset for $23,000 (clearly it’s a piece of Auckland land!), which has a GST component of $3,000. Now you should only have to pay $2,250 GST due to the assets 75% taxable use, however the current disposal adjustment calculation only allows you to claim any input tax included in the original purchase price which you have not yet claimed – so $375.00 in the present case. So you have to pay $2,625 GST to IRD, not $2,250, and are therefore over-taxed by $375.00. The amendment will ensure the disposal calculation enables you to claim $750.00 additional input tax in the disposal return period, with the consequence that you will now only be paying GST on the taxable use portion. The amendment will apply from 24th February 2020.
Amendment number three – the plate of goodies continues with this amendment. Presently if you acquire second-hand goods from an associated person, and that associated person acquired the goods from a non-registered person, then your GST claim is nil. This is due to an anti-avoidance rule introduced many years ago, which introduced a ‘lessor of’ rule (cost, market value or vendors original GST cost) to determine your input tax deduction claim. Now like a fair number of anti-avoidance rules, it was an over-reach provision, capturing numerous transactions where there was no ‘mischief’ in the mind of the taxpayer. The proposed amendment will remedy this over-reach, by now permitting you to claim an input tax credit equal to the tax fraction of the purchase price of the goods paid to the non-associated vendor. This change will apply from date of enactment.
Amendment number four – this one will certainly assist any overseas clients you may have who are importing goods into New Zealand, and wholly supply only New Zealand GST registered customers (B2B). Presently these non-residents cannot use the special non-resident business claimants regime to recover the New Zealand Customs GST (potentially their only New Zealand GST cost), because the rules currently deem the New Zealand recipient to have incurred the New Zealand Customs GST, not the non-resident business – another anti-avoidance rule to ensure no GST seepage risk where the imported goods are being received by a non-GST registered customer (or a GST-registered one, but the goods are not for use in the taxable activity). Now due to existing place of supply deeming rules, the only way the non-resident supplier could recover the New Zealand Customs GST, was to register for GST under the standard regime, but to do this, they would then have to have their New Zealand B2B customer agree that the place of supply was deemed to be in New Zealand, and consequently a taxable supply would occur (thereby entitling the non-resident to recover input taxes incurred in making those New Zealand supplies). The amendment will allow a non-resident business to now utilise the special GST regime to recover their New Zealand Customs GST provided the goods are going to a New Zealand B2B customer, instead of having to proceed down the standard GST registration process. This change will also apply from date of enactment.
Amendment number five – in essence is a reflection, that like me with my non-hip use of words, existing GST documentation rules are well past their use-by date, and are certainly out of step with modern business practices. The GST invoicing rules have basically remained unchanged since their introduction in 1986. Post-date of enactment of this amendment, two new terms will be introduced – ‘supply information’ and ‘taxable supply information’ – a list of information now automatically to be supplied by the supplier to the recipient (gone are the days where the recipient has to request a tax invoice from the supplier). The recipient will then simply use the ‘taxable supply information’ to file their input tax claims (so no longer requiring a tax invoice), but there will be penalties imposed on the recipient, where it is discovered that they have claimed the same input tax more than once. For those who use the ‘buyer-created’ tax invoice regime, the requirement to apply for IR approval will also disappear, going forward, there simply needing to be an agreement between the parties that only the recipient will provide the ‘taxable supply information’.
Amendment number six – finally and hopefully this amendment will not be needed in practice too often, but it’s taxpayer friendly nevertheless. Presently if there is a zero-rated transaction and post settlement it is discovered that the zero-rating treatment was incorrect, the purchaser has the obligation to pay the appropriate GST that should have been charged on the supply, with the excess tax payable in the return period covering the settlement date (usually). Not a good outcome if the error is not ascertained until six-twelve months down the track – the purchaser now exposed to penalties and use of money interest as well. The proposed amendment will move the timing to the return period during which the recipient of the supply became aware of the zero-rating error, and will apply from the date of enactment.
Now I expect you are excited too?
Determining bloodstock cost price
If you are a breeder of bloodstock, then QB 21/09 – ‘How to determine the cost price of bloodstock’ may be for you.
The QWBA outlines how to determine the cost price of bloodstock, and it is relevant to a person who has a bloodstock breeding business.
The answer given in QB 21/09, is that the overarching principle is that, wherever possible, actual cost should be used as the basis of valuation. Where the actual cost is not known with certainty, such as with homebred progeny, a consistent means of establishing the cost price of that progeny is still required. For home-bred progeny, the cost price should reflect the cost to the breeder of producing the foal.
QB 21/09 is a ten page document with a number of examples throughout.
This article from the ‘A Week in Review’ newsletter was originally published Monday 13 September 2021. If you have any questions or would like a second opinion on any national or international tax issues, please contact me email@example.com.
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