Week 8 Tutorial PDF

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Week 8 Tutorial: Goods and Services Tax 1. Explain if and how the following transactions are subject to GST. 1. (a) Charges made a bank to an elderly client. Would you advice differ if the charges were made to a business? 2. (b) Weekend consultancy work provided a person to a firm to maintain comput...

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Week 8

Tutorial: Goods and Services Tax 1. Explain if and how the following transactions are subject to GST. 1. (a) Charges made by a bank to an elderly client. Would you advice differ if the charges were made to a GST-registered business? 2. (b) Weekend consultancy work provided by a self-employed person to a firm to maintain computer systems. Would your advice be any different if the work was carried out at the weekend by an employee? 3. (c) Maree is a very successful landscape painter with sales of $80,000 per annum. She is registered for GST. She is considering semi-retirement and anticipates for the next 12months her sales will halve. She seeks your advice on what impact (if any) this will have on her GST status. 4. (d) Investment advice supplied by a solicitor. 5. (e) Donated clothing sold by a charity. 6. (f) The sale of a property (land and building) by Developer Co Ltd (a property developer) to Sinkie Boats Ltd (a manufacturer of leaky boats) on 30 April 2019. Both parties are GSTregistered. Sinkie Boats Ltd will conduct its business from the entire property. 7. (g) The sale of a sweet manufacturing business between registered persons, the sweet manufacturing business being closed down immediately after settlement and the plant purchased is used for a different activity.

Question 1: (a) Exempt suppler are excluded from GST (are not taxable suppler, or are zero-rated supplies s 8 GSTA). The supplier are also known as “exempt” supplier s 14 GSTA. Financial services supplied by bank such as clearance fees, are included as an exempt supplies s 14(1)(a), (3). So, the financial service would be exempt. However, if the charges were made to a GST-registered business who has mainly makes taxable supplies, the GST may be zero-rated. The bank would need to elect to treat the supply as zero-rated s 11A(1)(q),() and s 20C-20F GSTA. So, the financial service between the bank and the GST-registered business could be zero-rated. (b) A person can only be registered for GST if they are carrying on a taxable activity. There are 4 requirements to this: (a) some form of activity which the weekend consultancy work is; (b) carried on continuously or regularly, which this wouldn’t be so this would not be taxable. However, if the work was carried out by an employee

Week 8

(c)

(d) (e)

(f)

(g)

the work could be continuous, (c) for profit and (d) involves the supply of goods and services to another for a consideration. Maree currently is carrying on a taxable activity as she exceeds the $60,000 in annual sales so she is registered for GST: s 51(1). As her sales are halving (to $40,000) per annum, she is below the registration threshold. It is then at the option of Maree as to whether or not she wants to register also known as “voluntary” registration: s 51(3). There are fines for failing to register if her supplies were continue to exceed $60,000 p.a. Investment advice supplied by a solicitor, and similar services, are not a financial service and is therefore subject to GST s 14(1)(a), (3). Items that are not included in the GST regime include donations. The supply by a non-profit body of any donated goods or services: s 14(1)(b) is also considered as exempt supplies. Section 11(1)(mb) provides that a GST-registered person must zero-rate a supply if at the time of settlement the supply wholly or partly consists of land which is the case in this situation (land and building). It also provides that is it made to another registered person (also the case), and the recipient acquires the goods with the intention of using them for making taxable supplies (also the case as he intends to conduct its business from the entire property) and the supply is not a supply of land intended to be used as a principal place of residence of the recipient or a relative of the recipient (also the case as it is not for residence, but just for business). “Land” is defined in s 2(1) of the GST Act. It includes physical ground and includes building, and other structures that become a fixture so are part of the land. If the activity is not to use the goods wholly for making taxable supplies then the supply may not be zero-rated....