Treatment of services acquired by a purchaser

(Clause 141(2))

Summary of proposed amendment

The Goods and Services Tax Act 1985 is to be amended to clarify that the purchaser of goods and services zero-rated under section 11(1)(mb) must account for output tax on any non-taxable use of the services acquired as part of the wider supply.

Application date

The amendment will apply from 1 April 2011.

Key features

Section 20(3J)(iii) of the GST Act is being amended to require purchasers to account for output tax on any non-taxable use of services.

Background

The Taxation (GST and Remedial Matters) Act 2010 made a number of changes to the GST Act, strengthening the rules in order to prevent “phoenix” fraud schemes by requiring vendors to zero-rate certain transactions that involve land. If land forms part of a wider supply and the zero-rating rules apply, the whole supply rather than just the land component of the supply is zero-rated.

To ensure that any non-taxable use of a zero-rated acquisition is accounted for by the purchaser, section 20(3J) requires the purchaser of zero-rated goods to account for output tax on any non-taxable use of the goods. The legislation, however, fails to state that the purchaser must also account for output tax on any non-taxable use of the services acquired as part of a wider supply.