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September 13, 2021
New Zealand proposes changes to Goods and Services Tax
On 8 September 2021, the New Zealand Government introduced the latest omnibus tax Bill (the Bill) into Parliament. The Bill includes several significant proposed Goods and Services Tax (GST) changes.
This Alert summarizes the GST-related amendments included in the Bill.
GST tax invoice requirements
The proposed changes seek to modernize the GST rules and provide for information in relation to supplies to be created and retained in business' record-keeping systems, removing the current requirements to create and maintain prescribed documents (such as tax invoices and credit notes).
The focus of the changes is on providing flexibility for business in how GST information related to supplies is communicated to customers. Importantly, the changes would remove the need for a tax invoice to be held to support input tax recovery, with entitlement to input tax recovery instead being supported by business records showing the GST that has been borne on the supplies.
GST treatment of cryptoassets
The Bill proposes that cryptoassets should be excluded from the ambit of GST and the financial arrangement rules to ensure these rules do not impose barriers to investing into, or raising capital from, cryptoassets.
The proposal to remove GST from supplies of cryptoassets is similar to the treatment of money (outside the scope of GST). This has been achieved by specifically defining cryptoassets and by amending the definitions of both “goods” and “services” in the GST Act to expressly exclude cryptoassets. The Bill also proposes that the existing rule enabling input tax recovery on capital raising costs also apply to raising capital through issuing cryptoassets.
The relevant law changes apply retrospectively from 1 January 2009, to precede the launch of the first cryptocurrency on 3 January 2009.
Domestic freight services
Domestic transportation supplied as part of international transport will be zero-rated. This means that the supplier of domestic transportation no longer needs to be the supplier of international transportation to zero-rate the domestic component. Zero-rating applies regardless of the residency status of the customer.
The Bill proposes two amendments to the current GST apportionment rules with the intention to reduce compliance costs for GST-registered businesses who carry out both taxable and non-taxable activities.
Second-hand input tax credits on supplies between associated persons
Currently a second-hand goods input tax credit is not available between associated persons if there was no GST charged on the original acquisition of the goods, often producing an unfair outcome. The proposed amendment would remove this limitation, so that the second-hand goods input tax credit is limited to the tax fraction (3/23rds) of the original cost of the goods to the supplier.
Clarifying rules for groups of companies
The Bill proposes certain amendments to the GST grouping rules. The proposals clarify how the GST grouping rules should be applied in relation to the other provisions in the Act, particularly consistent with the “wide” interpretation of the GST grouping rules which suggests that supplies/acquisitions by a member of the GST group are deemed to be made/received by the GST group representative. The proposal is an overdue but welcome inclusion and is more likely to assist in achieving the policy objectives of the GST grouping provisions in relation to reducing compliance costs and distortions that might arise between a single entity, a branch structure and a group structure.
Other GST changes of note
Other proposed GST changes include:
For additional information with respect to this Alert, please contact the following:
Ernst & Young Limited (New Zealand), Indirect Tax, Auckland