Capital raising, zero rating rules and apportionment methodology reforms
The Goods and Services Tax Act 1985 has been amended. Changes include:
Input tax deduction for capital raising costs
From 1 April 2017, businesses who principally make taxable supplies will be able to claim an input tax deduction for their costs of capital raising, provided the business intends to use the funds in a taxable activity, and other requirements are satisfied. This change is intended to eliminate the effective double taxation that arises from the cost of the unrecoverable GST being passed onto customers, and/or borne by the business raising the capital.
GST now applies to a wider range of services connected with land in New Zealand
Services supplied to a non-resident in connection with land in New Zealand that are intended to enable or assist a change in the physical condition, ownership or other legal status of the land are no longer able to be zero rated and will be subject to GST.
This change applies from 1 April 2017 and is intended to capture a number of professional services, for example legal, architectural or real estate services, where the ultimate outcome is to change the legal nature of the land but the services do not involve any physical change or connection to the land.
Conversely, when these types of services are provided in relation to land outside New Zealand, zero-rating will apply.
Under the new rules the GST treatment therefore depends on the location of the land, as opposed to the location/residence status of the recipient.
For further information on the changes to the GST treatment of services related to land, see Inland Revenue’s Special Report.
Alternative apportionment methods
Certain businesses with mixed taxable and exempt supplies will be able to apply alternative methods of apportioning and making adjustments to input tax deductions from 30 March 2017.
The alternative method must be agreed with the Commissioner, with two groups being eligible to apply to the Commissioner for an alternative method:
- Businesses with turnover of greater than $24 million, and
- Industry associations.
Qualifying businesses can agree a method with the Commissioner which applies to their own activities, whereas industry associations agree methods that are available to persons in that industry.
Agreed apportionment methods must be fair and reasonable, and take into consideration the outcomes that would be reached if the existing rules were applied.
This change therefore provides a simpler alternative but reaches a similar outcome to the existing rules.
The ability to apply an alternative method should provide a welcome reduction in compliance costs for many retirement village operators, who typically deal with combinations of exempt/taxable supplies that can be difficult to monitor.
We welcome these amendments, which have been a long time coming. The majority of the amendments were originally included in GST – Current issues released by Inland Revenue in September 2015.
Give us a call if you would like to discuss how any of the GST amendments might affect you.