Paper seeks views on GST changes
A tax policy issues paper released today for public consultation looks at options for strengthening the GST neutrality of business-to-business transactions and reducing the risks that GST can present to both businesses and the government.
"A fundamental principle of our GST system is that the tax must be neutral for businesses whose supplies are subject to GST," Revenue Minister Peter Dunne said today.
"That means businesses should not bear the cost of the tax. The GST they charge on taxable supplies is balanced by input tax claims. GST should not be a permanent business cost in these circumstances.
"If the tax rules do not clearly provide neutrality for businesses, they can face unexpected GST payments or tax penalties.
"It is also important to the government that GST claims are balanced against payments. The GST refunds it issues should be offset by corresponding GST payments.
"When there is a large claim but no corresponding payment, that may be may be for legitimate reasons, the result - for example - of a business's liquidation or bad debts. It may also be for other reasons, such as the exploitation of timing mismatches or through the deliberate use of 'phoenix' entities to avoid paying GST.
"The issues paper released today, which has been prepared by tax policy officials as a first step in the consultation process, seeks feedback on a range of legislative options for ensuring that business-to-business transactions are neutral.
"To strengthen the GST neutrality of transactions involving high-value assets such as 'going concerns', land and assets with a value of $50 million or more, the paper suggests replacing the going concern rules with an expanded set of rules that ensure neutrality and that apply to a wider range of transactions. Associated changes would ensure that input tax deductions are not denied for nominee and related transactions.
"The paper outlines three options for reducing the risks arising from phoenix entities, which are a particular problem for GST systems that are based on the 'credit-invoice' method. They are to enforce GST neutrality on certain transactions created between close associates, allow Inland Revenue to impose caveats on certain land transactions, and extend the time available to Inland Revenue before it must release a refund.
"To reduce the revenue risks associated with timing mismatches, the paper suggests either limiting access to the invoice basis of accounting and strengthening the application of existing anti-avoidance measures or increasing the payments basis threshold.
"Also covered in the paper are a number of possible changes to simplify and clarify the change-in-use rules and to clarify the GST treatment of short-term accommodation – including redefining the terms 'dwelling' and 'commercial dwelling' and removing very small-scale and non-commercial supplies of accommodation from the definition of 'taxable activity'.
"These are all matters that will doubtless be of interest to tax professionals and to businesses that buy and sell significant assets, and I urge all interested parties to have their say on the options presented in the issues paper," Mr Dunne said.
The issues paper, "“Options for strengthening business-to-business neutrality in the GST rules", is published at www.taxpolicy.ird.govt.nz. The closing date for submissions is 11 July.
Ted Sheehan, Press secretary, 04 470 6985