InTouch: New Zealand

The Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act

The Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act (“the Act”) was passed in March, with Royal assent given on 30 March 2022. The new Act includes a variety of policy and technical changes to New Zealand’s tax legislation. We provide a high-level summary of the GST changes we anticipate as having the most significant impact below.

Cryptoassets

The Act confirms the following key GST changes / clarifications for cryptoassets:

• Cryptocurrency will be neither taxable nor an exempt supply – as such, transactions involving cryptocurrencies should effectively be ignored from a GST perspective.

• Non-fungible tokens (“NFTs”) will be captured by ordinary GST principles, including the remote services rules. 

• Services which involve arranging the provision, or transfer, of ownership over cryptocurrency are confirmed as being exempt e.g. brokerage services.

• Options over cryptocurrency are also confirmed as being exempt from GST.

All the above changes are deemed to apply retrospectively (from 1 January 2009 – when Bitcoin was launched). In addition, GST-registered businesses will be able to claim GST in respect of costs incurred on crypto coin issues (from 1 April 2017).

Modernising invoicing requirements 

The Act includes significant changes to the invoicing and record-keeping requirements, which were widely considered to be out of date. 

One of the most significant changes is the removal of the requirement to issue and hold a single prescribed “tax invoice” document. This change permits input tax to be recovered and businesses to be compliant as long as they hold specific information (known as “taxable supply information” – in some form, e.g., commercial invoices, supply agreements etc).

Despite the good intention to simplify and modernise the rules, there are a number of drafting complexities in the rules so care will be required. Some of the more significant changes (including the removal of the requirement to issue tax invoices) have been deferred by one year and will apply for taxable periods beginning on or after 1 April 2023.

The following changes came into force from 30 March 2022:

• There is no longer a requirement to obtain the Commissioner’s approval before issuing Buyer Created Tax Invoices.

• Reissued invoices are no longer required to be marked “copy only”.

We provided more detailed commentary on these changes when they were proposed in our September Tax Tips Alert. 

GST grouping

Historically there had been an inconsistent approach to how widely the GST grouping rules should be applied - i.e., whether all supplies should be considered to be made / received by the representative member, or by the individual entities (in which case the benefits of grouping were mainly administrative). 

The Act has clarified this and has adopted a “wide” view - i.e., all supplies made by members in a GST group are deemed to be made by the group’s representative member.

In addition, the Act permits companies leaving GST groups to limit their joint and several liability.

Overall, the changes are positive, but care will be required in many grouping scenarios especially for partially exempt taxpayers and for situations where companies enter or exit the GST group. We expect Inland Revenue will issue interpretative guidance. 

Allowing a second-hand goods input tax credit on supplies between associated persons

Historically if two parties were associated this would automatically remove the purchaser’s ability to claim a second-hand goods tax credit.

The Act has removed this restriction and permits input tax to be recovered by an associated person, based on what would have been available to the original purchaser.

We provide full commentary on the Bill (including all tax type changes) in our latest Tax Tips publication. 

Other Updates

QWBA: Are certain services supplied by airport operators to international airline operators zero-rated?

Inland Revenue recently released a draft Question We’ve Been Asked (QWBA) addressing whether services supplied by airport operators to international airline operators should be zero-rated under section 11A(1)(a) of the GST Act. The types of services looked at in the QWBA included garbage disposal, lighting, security, aircraft parking and terminal services. 

The QWBA concludes that these services should be standard rated at 15% on the basis that they do not involve the transport of passengers or goods, which is a requirement for section 11A(1)(a) to apply. 

QWBA: Importers and recalculated GST

This QWBA answers the question of whether a GST-registered importer who overpays GST to the New Zealand Customs Service (Customs) can claim an input tax deduction for the whole amount of the GST paid. 

The issue will only arise if the registered importer has actually paid GST to Customs. As such, if an error has been discovered before a payment is made, then the importer should contact Customs to fix the error. 

However, the QWBA concludes that the proper mechanism would be for a GST-registered importer to claim the full GST input tax credit where the importer has overpaid, rather than Customs refunding the overpaid GST. 

Where the importer is not GST-registered, so is not entitled to claim the input tax, Customs is allowed to refund any overpaid GST. 

QWBA: Customs brokers and GST levied

This QWBA asks whether a customs broker can treat GST that is paid to Customs on behalf of their importer clients as part of their taxable activity when accounting for GST. 

The QWBA concludes that a broker cannot claim a GST input tax credit for amounts paid to Customs on behalf of an imported client on the basis that:

• The customs broker does not pay the GST that Customs collects on their own account. They pay it on behalf of the importer. 
• The customs broker is not the person who enters the goods for home consumption. To the extent they arrange for this to happen, the customer broker is merely acting as an agent for the importer. 
• The customs broker does not use the goods for making their taxable supplies. To the extent that the customs broker is also a freight forwarder, the delivery of the goods is not considered a use in making taxable supplies.

This is a significant GST development for the broker / freight forwarding industry.

Public Ruling: Importers and input tax deductions

This draft ruling outlines when invoice-based importers can claim an input tax deduction on GST levied by Customs. It also explains what documentation importers can use to support their claim for an input tax deduction. 

The ruling will replace BR Pub 06/03, “Importers and GST input tax deductions”, with effect from 30 June 2022. The key differences between that publication and the current draft are:

• references have been updated for the Customs and Excise Act 2018; and 
• commentary to the ruling has been revised to reflect updated practices and processes.

Additionally, the draft looks to cover new ground, such as:

• circumstances where a manual invoice or statement will be issued; and
• record-keeping requirements. 

For more information, please contact
Eugen Trombitas, Partner, PwC New Zealand