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On 30 August 2022, New Zealand released its 2022 Omnibus Tax Bill (Bill) proposing several amendments to the Goods and Services Tax (GST) law. The proposed changes covered in the Bill are wide ranging and should be of interest across all sectors.

Extending the GST rules for electronic marketplaces to the platform economy

Consistent with recent Inland Revenue’s (IR) proposals, the bill introduces changes that would require operators of electronic marketplaces (both offshore and in New Zealand) through which supplies of “listed services” [certain transportation services (ride sharing), beverage and food delivery services and taxable accommodation services (e.g., short-stay accommodation)] to account for GST on the listed services where those services are supplied to customers in New Zealand. It is currently the underlying supplier’s responsibility to account for the GST (if GST registered).

The proposals also include introduction of the “flat rate” regime for the benefit of underlying suppliers who are not registered for GST purposes (for e.g. on the basis they do not exceed the GST registration threshold). Under the regime, the operators of electronic marketplaces would be entitled to make a deduction of the GST payable (being 8.5% of the value of services) and pass it on to the underlying suppliers to compensate them for their inability to claim GST on costs incurred in relation to the supplies. For completeness, suppliers of these services who are registered for GST will continue to take input tax deductions for the GST on their costs in making these supplies in the usual way.

The Bill proposes to enable large commercial enterprises that provide accommodation through electronic marketplaces (for example, hotels) to enter into written agreements with the operators of those electronic marketplaces that the large commercial enterprise, and not the operator of the electronic marketplace, will remain responsible for collecting and returning GST on the accommodation they provide.

If enacted, these rules will apply from 1 April 2024.

The Bill also proposes to implement the OECD¹ information reporting and exchange framework from the 2024 calendar year. In effect, digital platforms would be required to conduct certain due diligence procedures for sellers on their platform, collect and collate information, and report this to Inland Revenue. The information would relate to a calendar year and would need to be provided by 31 January following the end of the calendar year. The first information reporting would be required in early 2025, and penalties could apply for failure to comply with these obligations.

GST apportionment and adjustment rules

Inland Revenue recently issued an Issues Paper proposing several amendments to the GST input tax apportionment rules. The Bill incorporates several of the proposals with the intention to simplify the apportionment rules, reduce compliance costs and improve fairness in tax outcomes. Some of the key proposals include:

• Election to exclude assets from a registered person’s taxable activity – A GST-registered person may elect to treat assets as being separate from their taxable activity at the time of purchase. In these circumstances, the purchaser of the asset cannot deduct GST input tax on the purchase of the asset and does not account for GST output tax on any subsequent disposal – their purchase is the final consumption.

• Principal purpose test for low-value assets – For assets purchased for less NZ$10,000 and acquired for the principal purpose of making taxable supplies, a full input tax deduction could be claimed and there would be no requirement to apportion or make GST adjustments. If such an asset was not acquired for the principal purpose of making taxable supplies, no input tax deduction could be claimed.

• Introduction of integrity measures to enable IR to collect GST on the sale of assets in relation to which input tax was previously claimed by the seller.

• Several remedial changes to the current GST apportionment and adjustment rules to reduce compliance costs.

Remedial changes to the new GST invoicing rules

The Bill includes several remedial changes to the legislation passed to introduce comprehensive changes to the existing GST invoicing rules (which come into effect from 1 April 2023). The rules as currently drafted have resulted in certain unintended consequences, creating confusion on the information requirements. The remedial changes should ensure that taxpayers are not burdened by additional compliance costs and obligations because of the changes, consistent with the overall aim of the tax invoice changes of providing more flexibility to taxpayers with respect to invoicing (aligned with modern business practices and government initiatives on e-invoicing).

GST on management fees charged to managed funds

While the Bill initially contained proposals that would exclude fund management services from the definition of “financial services” – effectively standardizing the treatment of fund management services to both managed funds and retirement schemes across the sector (i.e., subject to GST at 15%), it was subsequently announced that the Government will not proceed with this proposal. This came in response to public concerns raised in respect of the impact on retirement savings.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young Limited (New Zealand), Indirect Tax, Auckland

• Paul Smith, New Zealand Indirect Tax Leader | paul.smith@nz.ey.com
• Simon Dobson | simon.dobson@nz.ey.com
• Saket Sharma | saket.sharma@nz.ey.com

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Endnotes

1. Organisation for Economic Co-operation and Development.