GST summary notes bring in PDF

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Summary

bring in notes for GST q...

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GST Intro Why? Broadens tax base (more aspects of economic activity are caught in tax net). Simple flat rate. Excellent source of revenue. Difficult to evade Generally S 8 GST Act 1985 - GST is imposed on all goods and services supplied in New Zealand (excluding exempt supplies) by a registered person in the course of a taxable activity. -

Also charged on goods imported into NZ, and some imported services (s 12)

Definitions -

Goods, services, output tax - (s 2) Input tax (s 3A(1))

Who pays the tax? GST is levied throughout the production and distribution chain on the value added at each stage of getting the good or services from its initial state to the end consumer. Thus, at each stage along the supply chain, business must add GST on goods and services they supply but are able to offset the GST they pay on the goods and services they receive. Difference is GST payable - (s 20)  Final consumer bears burden of GST. “A registered person” If a person carries on a “taxable activity” and makes (or will make) taxable supplies in NZ exceeding $60,000 in a 12-month period, that person MUST be registered for GST (s 51(1)). Below this threshold, registration is voluntary. (s 51(3)). The $60,000 threshold is qualified if it is met solely from a. Ceasing to carry on a taxable activity b. Substantially and permanently reducing the size or scale of operations (s 51(1)(c)) c. The replacement of plant or other capital assets used in taxable activity (s 51(1)(d)) “Taxable activity” A person can only register for GST if they are carrying on a taxable activity. 4 requirements 1. 2. 3. 4.

Some form of activity (has been given broad construction by courts) Continuous or regular. Generally speaking, does not apply to one-off transactions Whether or not for a profit Involves supply for consideration

Exceptions are hobbies (s 6(3)(a)), occupation as employee (s 6(3)(b)), making of exempt supplies (s 14)

“supply”

“supply” is defined broadly in s 5(1) -

More detail in s 8(2) & (3) re residency

S 8(4B) – the reverse charge – may apply to importer of service in certain circumstances 4 types of supply; a. b. c. d.

Subject to GST Exempt from GST Zero rated for GST purposes Not subject to GST

Subject to GST -

Most goods are subject to GST (s 5), including remote services (ss 8(3)(c) & 8B), defined in (s 2)

Remote services -

Non-resident business that supply qualifying remote services to customers resident in NZ are required to register for NZ GST, and charge GST on services. Will need to do so when $60,000 threshold is met, a customer is resident in NZ, and the non

Exempt supplies -

Dealt with in s 14. EXLCLUDED from GST. Exempt supplies include; o Financial services like bank charges (but doesn’t exclude investment advice etc) (s 14(1)(a)) o The supply by a non-profit body of any donated goods or services (s 14(1)(b)) o Rental of residential dwellings (s 14(1)(c))

Zero-rated supplies -

Dealt with in s 11 (zero rated goods), s 11A (zero rated services). In relevant cases, GST is charged at rate of 0% Zero-rated supplies include; o Exported goods and services o S 11A(1)(bb) – cruise ship stuff – would have to either commence or end overseas o Going concerns o Land transactions

Items not included in GST regime Include; salary and wages, interest and loan repayments, purchases from unregistered persons, donations

Going concerns and agreements for sale (zero-rated) Defined in s 2 and set out in s 11(1)(m) S 11(1)(m) – there must be: -

A supply between registered persons …of a taxable activity that is a going concern at the time of supply, and …it is agreed by the supplier and purchaser in writing that it is the supply of a going concern, and …it is agreed that it is capable of being carried on by the purchaser as going concern.

Even if sale is considered by parties to be a going concern, contract should cover situation should it not be zero rated by including the phrase “plus GST (if any)”. Might also say “GST inclusive”. New Zealand Refining co ltd v A-G – when contract is silent, presumption of inclusiveness. S 78E – what happens when mistakenly believed to be going concern and contract is silent – vendor will be able to recover GST from purchaser. CONTRACT MUST BE COMPLETELY SILENT THOUGH; Capital Enterprises Ltd v Stewart Land Transactions (zero-rated) “Land” – s 2(1) S 11(1)(mb) – GST registered person must zero-rate a supply if, at time of settlement, the supply wholly or partly consists of land and; -

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Is made to another registered person; and The recipient acquires the goods with the intention of using them for making taxable supplies o Applies even if only part of goods intended to be used, but apportionment. The supply is not a supply of land intended to be used as a principal place of residence of the recipient (or relative) o If part for residential use, s 5(15) requires separate treatment.

If any of these conditions are not satisfied at the time of settlement, supply will be taxed at 15%. If the land is supplied as part of a larger supply, whole supply is zero-rated. Purchaser is obliged to provide supplier before settlement with a written statement that they are GST registered, as well as their intentions in respect to land.

How to calculate it? (s 19) Three bases: 1. Invoice basis: accounted for upon invoice 2. Payments (cash) basis: accounted for only to extent that cash has changed hands. Only available under certain circumstances a. Where taxable supplies < $2m p/year b. For non-profit bodies c. Whenever the commissioner is satisfied the payments basis is appropriate

3. Hybrid basis: input tax is claimed using payments basis and output tax is accounted using invoice basis s 15 - Must be filed every 1 or 2mths. 6mths if commissioner approves and supplies don’t exceed $500,000. S 24 - No invoice required for low value supplies (...