McKenzie - GST - A Practical Guide

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National Library of New Zealand Cataloguing-in-Publication Data

McKenzie, Alastair.
GST : a practical guide / Alastair McKenzie. Ed. 9.
Previous ed.: 2008.
Includes index.
1. Value-added taxNew Zealand. I. Title.
343.93055dc 23

ISBN 978-1-77547-068-7

2012 CCH New Zealand Limited
Published by CCH New Zealand Limited
First published 1986
This edition published April 2012

All rights reserved. No part of this work covered by copyright may be reproduced or copied in any form or by any means (graphic, electronic or mechanical, including photocopying, recording, recording taping, or information retrieval systems) without the written permission of the publisher.

Preface

Goods and services tax (GST) took effect on 1 October 1986. The New Zealand tax was based on the United Kingdom VAT regime, but significantly modified via fewer exemptions and a single standard rate. It was perceived to be a compliance tax founded on straightforward principles.

However, in time, the very simplicity of the GST regime generated a raft of developments. The Goods and Services Tax Act 1985 used general concepts to differentiate between different GST status (for example, financial services were GST-exempt while going concerns were zero-rated). This necessitated interpreting the boundary line of the general concept (for instance, the precise limits of what comprises a financial service and a going concern). Numerous court and Inland Revenue Department (IRD) rulings interpreted those boundary lines.

Other factors also generated GST developments:

• Taxpayers sometimes took a different view of their GST liability than did the IRD. This resulted in the courts addressing a wide assortment of other issues. These ranged from whether a person actually had a GST liability (such as where a mortgagee effects a mortgagee sale) to the timing of a GST impost.
• Technological advances required a specific GST response. For example, the advent of the Internet led to an increase in New Zealanders importing services from overseas. GST rules were therefore introduced to tax imported services. Similarly, telecommunications advances resulted in overseas telecommunications companies providing services to people in New Zealand. Special GST provisions were then introduced to govern cross-border telecommunications services.
• Agitation for fairer GST rules by some industries resulted in changes. Most noticeable, financial services provided to business customers became more favourably treated (changing from GST-exempt to zero-rated).
• The 2011 legislative changes were effected to provide more functional rules (for input tax, input tax apportionment and adjustments) and to prevent abusive taxpayer behaviour (via zero-rating land transactions between GST-registered persons so as to prevent purchasers claiming input tax where the seller did not account for output tax due to the IRD).
• Other legislative changes resulted for diverse reasons. These included revenue generating actions (eg increasing the GST rate from 10% to 12.5% and then to 15%) and clarifying rules (including introducing new going concern criteria). The effect of several court decisions was legislatively reversed. Other changes comprised enforcement action (eg subjecting GST-registered persons to a robust penalty regime) and administrative initiatives (such as the IRD becoming able to issue binding rulings).
• Persons selling land sometimes took a different view from the purchasers of their right to add GST to the contract price. Such conflict generated substantial case law between contractual parties.

The IRD issued commentary and rulings on these developments. The New Zealand GST regime, then, began life as a straightforward legislative regime. That legislative format is now swollen by special rules and other amendments. Hundreds of cases and IRD rulings have further enlarged the GST regime.

This book addresses the framework and operation of that expanded GST regime (Pts I and II). It then details how the tax applies to common transactions (Pt III). Finally, substantial problem areas are analysed (Pt IV). This book provides you with an overview of New Zealands comprehensive GST regime. It aims to state the law as at 1 January 2012. The commentary also incorporates the limited changes proposed by the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Bill 2011 (325-1) as at 1 January 2012 (that Bill being expected to be enacted by July 2012).

Alastair McKenzie
April 2012

CCH Acknowledgments

CCH New Zealand Limited wishes to thank the following who contributed to and supported this publication:

Managing Director: Matthew Sullivan

Director, Books: Jonathan Seifman

Publisher, Books: Andrew Campbell

Product Manager: Dione Kimpton

Editor: Reshma Korah

Production Team Leader: Yeong Wai Heng

Subeditor: Khairie Hisyam Aliman

Production Editor: Hiedayah Hamzah

Indexer: Logeswari Sivaguru

Cover Designer: Envisage Design

About the Author

Alastair McKenzie is a leading commentator on New Zealand GST. He is:

• the author of numerous articles and conference papers on the tax
• the consultant editor of the CCH loose-leaf service, New Zealand Goods and Services Tax Guide, and
• a past columnist on GST for the Chartered Accountants Journal of New Zealand.

Alastair has also co-authored a textbook and presented articles and seminar papers on the Australian and other overseas GST regimes.

His writings are quoted with approval in tax commentaries, other textbooks, and by the courts (see, for example, C of IR v Nicholls (1997) 18 NZTC 13,265 at 13,271).

Alastair provides GST consulting services to a select number of tax professionals and has been rated as one of the top two professional GST advisors in New Zealand in independent surveys. He is also a former part-time lecturer in the Master of Taxation Studies degree at the University of Auckland and in the Master of Business (Tax) programme at AUT University.

Alastair holds an Arts degree and an honours degree in Law.

Introduction

Goods and services tax (GST) comprises New Zealands first extensive indirect tax. It is broadly based on the United Kingdoms Value Added Tax and came into force on 1 October 1986. It is generally regarded as being a successful tax (C of IR v Databank Systems Ltd (1989) 11 NZTC 6,093 (CA) at 6,100 per Cooke P). This is evidenced by the rapid internationalisation of the tax: countries which have adopted a GST-type regime after studying the New Zealand experience include Canada, South Africa, Thailand, Fiji, Singapore and Australia.

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