Last week we discussed with you changes proposed in relation to Closely Held Companies. This week we discuss another area of change, relating to GST.

The key GST changes included in the bill relates to the following issues:

  • the deductibility of GST associated with the costs of raising capital;
  • the eligibility of large, partially exempt, businesses to agree an alternative method of apportionment;
  • the ability to take a deduction for second-hand goods, for goods composed partially of gold, silver and platinum; and
  • the ability to zero-rate services provided in connection with land in New Zealand.

An important amendment is introduced to include a wider range of services related to land in New Zealand that will be subject to GST. A new test is introduced where, if the requirements are met, the service would be charged with GST. The test supplements the existing rules when the services supplied are in connection with land and catches where the service is intended to enable or assist a change in the physical nature, ownership or other legal status of the land. This aligns the GST treatment to where the land is located rather than the location of the recipient of the service.
The bill also proposes to amend legislation to allow businesses to claim back any GST incurred in raising capital in some circumstances. This is as long as the capital relates to a taxable activity and is used in making taxable supplies. Previously these types of costs were regarded as relating to exempt supplies and posed a large cost to businesses. The policy intention here is to allow a GST claim for activities that a GST registered person makes in relation to their taxable activity when the expense relates to making taxable supplies.
Some organisations in New Zealand such as retirement villages have both taxable and exempt supplies. They are required to make constant adjustments in relation to these supplies which can be difficult and pose high compliance costs. The second change proposed is to enable these types of businesses to use an alternative method for apportioning and making adjustments. The method will either be agreed with IRD or by the industry for large organisations (i.e. turnover exceeding $24 million). The bill sets out what considerations should be made and eligibility criteria.
Last but not least, although only likely to be relevant to a small number of people the government also proposes to expand the definition of “second-hand goods”, by narrowing the exception that applies to goods composed of gold, silver or platinum. This will allow GST registered persons to in some cases claim GST on these particular goods. If these apply to you the bill sets out further detail in relation to when a second-hand goods credit can be claimed.
More information on these changes can be found on the IRD policy website.