Chapter 1 - Background
1.1 New Zealand’s Goods and Services Tax (GST) rules require businesses, clubs and other entities to register for GST if they supply goods or services worth more than $60,000 a year. GST-registered persons are required to file GST returns and pay GST on the goods and services they provide (their supplies). The amount of GST they pay is based on the value of these supplies less the GST cost of any inputs that they purchase from other GST-registered persons. In this respect the GST system only taxes the “value added” by each business in a supply chain.
1.2 A body corporate is a legal entity created under the Unit Titles Act 2010 when multiple owners have unit title properties in an apartment building or similar complex. The body corporate comprises all the property owners and provides a way for the owners to act together in relation to their common and shared interests. This includes organising building maintenance, insurance, administration and financial management.
1.3 Currently, most bodies corporate are not registered for GST and Inland Revenue’s historical position has been not to allow bodies corporate to register for GST. A High Court decision, Taupo Ika Nui Body Corporate v CIR (1997) 18 NZTC 13,147, appeared to support this position by suggesting that most residential bodies corporate would not be required to register for GST.
1.4 In recent years Inland Revenue has been asked to consider whether bodies corporate should be able to register for GST – in particular, by a small number of bodies corporate who consider they could be entitled to GST refunds (as their expenses have exceeded their fees).
1.5 To answer this question, Inland Revenue undertook a legal analysis and came to a view that, under the current law, a body corporate could be considered to carry on a taxable activity and make supplies to their owners in relation to a number of services required by the Unit Titles Act 2010.
1.6 A consequence of this view is that, if a body corporate makes supplies that exceed the $60,000 threshold, it would be required to register for GST. Similarly, a body corporate that makes supplies below the threshold would be able to voluntarily register for GST.
1.7 The new interpretative view was consulted on in an issues paper, IRRUIP7: Bodies corporate – GST registration released in May 2013.
1.8 Many submissions on this issues paper raised policy arguments on why bodies corporate should not be required to register for GST. Concerns were raised that the outcome appeared inconsistent with the fact that other types of residential property owners (such as owners of stand-alone homes) are outside the GST system and cannot register for GST. Other submissions pointed out that requiring bodies corporate to register for GST would impose compliance costs but, in most cases, would collect little additional tax revenue.
1.9 In response to these submissions, and concerns about the potential compliance costs that could arise under the new interpretation, the Government has decided to change the law so that it aligns the GST treatment with past operational practice and the GST treatment of other private homeowners.
1.10 For most bodies corporate, who have not registered for GST, the proposed changes would ensure that they would not have to take any action.
1.11 As part of the proposed changes, a “savings” provision will be provided for bodies corporate that are currently registered for GST. The savings provision will mean that these bodies corporate would apply the new rules from 6 June 2014 (the date the proposed changes were announced) and would apply the existing law for earlier periods.
1.12 Chapter 2 describes the technical details of the Government’s proposals and the intended policy outcomes of these proposals. To further clarify how the proposed rules might work, some suggested draft legislation has been prepared and presented in Appendix 1.
How to make a submission
1.13 The Government invites submissions on whether the proposed new rules and draft legislation would achieve the intended policy outcomes. Following analysis of these submissions, the Government intends to introduce amendments in the next available taxation bill.
1.14 Submissions should be addressed to:
GST treatment of bodies corporate
C/- Deputy Commissioner, Policy and Strategy
Inland Revenue Department
PO Box 2198
Or email [email protected] with “GST treatment of bodies corporate” in the subject line. Electronic submissions are encouraged. The closing date for submissions is Friday, 18 July 2014.
1.15 Submissions may be the subject of a request under the Official Information Act 1982, which may result in their release. The withholding of particular submissions, or parts thereof, on the grounds of privacy, or commercial sensitivity, or for any other reason, will be determined in accordance with that Act. Those making a submission who consider that there is any part of it that should properly be withheld under the Act should clearly indicate this.
QUESTIONS FOR SUBMITTERS
1. A GST exemption is proposed to remove bodies corporate from the GST system from 6 June 2014 (the date the proposed changes were announced) and to ensure that those bodies corporate which have never registered for GST can never register. Would the proposed exemption achieve this result?
2. To preserve tax positions taken by bodies corporate that have been registered for GST before 6 June 2014 a “savings” provision has been developed. Would the savings provision be effective?
3. An optional rule is proposed to allow bodies corporate that have been registered for GST before 6 June 2014 to elect to be treated as being registered from GST from a certain date (1 April 2010). Would this rule work as intended?
4. Some bodies corporate would be de-registered for GST as a result of the proposed exemption and may be required to pay GST on any assets that they own. Is a transitional rule required to deal with this problem?
5. A look-through rule is proposed to eliminate the tax cascades that could otherwise arise when the underlying property owner is GST-registered. Would the proposed rule prevent tax cascades?
2 In the case of an owner-occupier, GST does not apply as there is no supply for consideration when the homeowner provides accommodation to themselves. The GST Act exempts the supply of residential accommodation from GST to ensure that renters are not disadvantaged relative to owner occupiers.