Indirect tax snapshot
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Goods and Services Tax (GST) is the main type of indirect taxation in New Zealand.
GST is a tax on consumption which is applied on the supply of most goods and services. It is also applied to goods upon importation into New Zealand and certain services when purchased from a non-resident. Although GST is ultimately borne by the consumer by being included in the price paid, the responsibility for charging, collecting and paying it to the tax authority rests with the business making the supply (ie the sale).
GST must be charged on a supply of goods or services in New Zealand by a registered person in the course or furtherance of a taxable activity carried on by that person – this is referred to as output tax. Any GST on costs incurred in generating such supplies can be claimed – this is referred to as input tax. The difference between the output tax and the deductible input tax in each accounting period will be the amount of GST payable by the business to Inland Revenue.
A refund can be claimed where the input tax exceeds the output tax.
A taxable activity means any activity which is carried on continuously or regularly, whether or not for pecuniary profit, and involves or is intended to involve the supply of goods and services to another person for a consideration.
There are two rates of GST that are applied to goods and services in New Zealand; standard rate and zero rate. In addition, some goods and services are exempted from the tax. The most common exempt supplies include financial services, residential rent, charitable donations, fines, penalties and interest.
Businesses that make exempt supplies are generally unable to claim input tax on costs incurred generating those supplies, so the GST paid to suppliers is a ‘real’ cost to these businesses. However, there is an ability for businesses that supply exempt financial services to elect to zero-rate their supplies which enables a greater recovery of GST, where:
- an election is lodged with the Commissioner of Inland Revenue
- the supply is between two registered persons
- the recipient of the supplies makes at least 75% taxable supplies.
This is referred to as the provision of ‘business to business’ financial services.
Goods imported into New Zealand are subject to GST. This is imposed by New Zealand Customs at the border. The GST (plus any duties and other fees) must be paid by the importer at the time of importation in order for the goods to be released. The importer (if GST registered) can recover the GST where the goods imported are for use in its taxable activity. GST is charged on the value of the importation, including any customs duty, freight and insurance.
It is important to note the interaction between GST and customs duty. Customs duty is levied upon the importation of certain goods into New Zealand. Unlike other indirect taxes, such as GST, once duty has been paid it is not recoverable by the importer. It therefore represents a final cost to the importing business.
Prior to 1 December 2019, Customs did not collect duty and GST where the total amount payable on any one importation was less than $60 (gross value of good of $400) . From 1 December 2019, New Zealand Customs does not charge GST on items purchased offshore for $1,000 or less. This is because offshore suppliers (as well as market places and re-deliverers) supplying goods valued at or below NZ$1,000 to New Zealand-resident consumers are required to register and return GST on these supplies. The supplier is only required to register if they meet the registration requirements, that is, sales or expected sales of $60,000 to New Zealand customers in any 12-month period. Therefore, GST is not collected on imports below $1,000 where a remote seller falls below the threshold and does not voluntarily register.
Remote supplies of goods valued at over $1,000, including duty and delivery fees, are subject to Customs GST payable by the importer, not the remote seller (even if the remote seller is GST registered).
The remote seller GST regime minimizes compliance issues (eg no tax invoices are required to be issued). GST on sales to New Zealand customers is paid to New Zealand’s Inland Revenue but no GST on costs (input tax) may be claimed. Remote sellers may optionally register for GST on a standard basis if they will be making taxable supplies in New Zealand in addition to their remote sales.
A person who either makes or intends to make taxable supplies of goods or services in the course or furtherance of a taxable activity must register for GST if the value of its taxable supplies in New Zealand exceed $60,000 or is expected to exceed this limit within any 12-month period. A person can register on a voluntary basis even if the registration limit has not been reached.
For GST purposes, a ‘person’ includes any legal entity. Therefore, once a person is registered for GST all of their business activities will be covered by the registration – even if the nature of some of those activities are different.
Two or more persons can be registered together as a GST group if:
- they satisfy the ‘control’ test i.e. one of them controls each of the others, or one person controls all of them
- for companies, each of the companies is a registered person, or the total value of taxable supplies made by the companies is at least 75% of the total supplies made by the group to persons outside the group
- for companies, the members of the group have at least 66% common ownership.
A person cannot be treated as a member of more than one GST group at a time.
The main advantage of GST group registration is that, apart from a few limited exceptions, any supply of goods or services by a member of the group to another member of the group is disregarded for GST purposes. This reduces the risk of GST being accidentally omitted on supplies between separately registered, but associated persons.
However, there are some disadvantages and any decision on whether to group register should be carefully considered. For example, all GST group members (including former members) are jointly and severally liable for the GST debt of the group during the period of their membership.
Yes, although non-resident businesses are only able to register for GST in New Zealand if their taxable supplies are generated when the time of supply occurs within New Zealand. Exceptions to this are noted elsewhere in this summary (eg remote sellers of goods and services).
Time of supply arises at the earlier of an invoice being issued or payment being received.
For example, a non-resident who only exports goods to a New Zealand wholesaler would not be able to register for GST if the goods are outside of the country when an invoice is issued or any payment is received. However, the ability for a non-resident to GST register has been expanded (further information can be found below).
Yes, non-resident suppliers of remote services must register, charge and account for GST on supplies made to New Zealand residents. The same $60,000 of sales in any 12-month period registration threshold applies.
A ‘remote’ service is defined as a ‘service where, at the time of the performance of the service, there is no necessary connection between the physical location of the recipient and the place of physical performance’.
GST does not need to be charged if the service is provided to a New Zealand GST – registered businesses unless the supplier and recipient agree otherwise, in which case the supply will be zero-rated. Non-resident remote service providers must file their GST returns quarterly.
Special rules apply for electronic marketplaces such as app stores that act as sales agents for underlying suppliers (eg independent app developers). Registered marketplaces must charge GST on sales to New Zealand customers and return it to New Zealand’s Inland Revenue. The underlying suppliers do not need to charge and account for GST on their sales made through such registered marketplaces.
No, this is not a requirement. However, depending upon the types of supplies being made, the logistical considerations and the volume of transactions, non-residents may engage with a local agent to facilitate the supply. Specific GST provisions exist regarding transactions involving agents that should be considered before making any decisions.
Apart from non-resident remote service providers, GST returns may be filed monthly, bi-monthly or six-monthly depending on the level of taxable supplies in a 12-month period.
A bi-monthly return period is the default filing frequency in New Zealand. However, if a registered person makes taxable supplies of less than $500,000, they may apply to the Commissioner to return GST six-monthly. Conversely, if a registered person makes taxable supplies of over $24 million in a 12-month period, they are required to return GST on a monthly basis. Anyone can choose to file monthly if they so desire.
All GST returns have to be submitted by the 28th day of the following month, together with any payment. The exceptions to this rule are where the period ends 30 November, or 31 March. Returns and payments for these periods are due 15 January and 7 May respectively. If the due date falls on a weekend or public holiday the due date is pushed back to the next business day.
Late filing penalties are imposed if GST returns are not lodged by the due date. The current penalties per late return are $250 for taxpayers registered on an invoice or hybrid basis and $50 if registered on a payments basis.
A registered person will incur late payment penalty of 1% of their underpaid GST obligation on the first day after the due date, and a 4% incremental penalty on the seventh day after the due date.
In addition, interest will be charged on the accumulating total. The current interest rate charged by Inland Revenue is 7.0% p.a.
Yes. A range of penalties can be imposed where businesses do not comply with the GST legislation.
Shortfall penalties and interest can be applied for incorrect positions taken in GST returns. These penalties are very punitive, ranging from 20% to 150% of the GST discrepancy.
If an error is identified and voluntarily disclosed to Inland Revenue this reduces or removes the shortfall penalty exposure (depending upon the nature of the offence and whether the disclosure was made pre or post audit notification).
No. However, non-resident businesses that are not making taxable supplies in New Zealand are able to voluntarily register for GST in order to recover the GST on costs they incur (eg from a sales trip to New Zealand, or Customs GST if they are the importer of record even though time of supply occurs outside New Zealand).
To be eligible to register the business will have to:
- be registered for consumption tax in the jurisdiction they are tax resident; or
- where the jurisdiction of residence does not have a consumption tax, the person is carrying on a taxable activity, and has a level of taxable activity in a country or territory that would render them liable to be registered if they were carrying out the taxable activity in New Zealand (ie more than $60,000 of taxable supplies in a 12-month period).
A tax invoice must show:
- the words ‘Tax invoice’
- the seller’s name and address
- the seller’s GST registration number
- the invoice date
- the customer’s name and address
- a description sufficient to identify the goods or services supplied to the customer
- the total amount of GST charged expressed in New Zealand dollars.
It must also have either:
- the dollar amount of the supply, excluding GST, and the GST and total amount payable for the supply; or
- if GST is included in the final price, it has to be expressed in that case (eg 'This price includes GST at 15%').
An input claim can only be made if a valid tax invoice is held at the time the GST return is lodged.
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