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Inland Revenue

Tax Policy

PUBLISHED 5 August 2010

New tax bill closes GST “phoenix” fraud schemes

A bill tabled in Parliament today will close off a loophole in the GST rules where some taxpayers have avoided paying GST on their property transactions. The bill also clarifies the change-in-use rules and the GST boundary between commercial and residential accommodation. For more information see the Government’s media statement, the Taxation (GST and Remedial Matters) Bill, the Commentary on the bill and Regulatory Impact Statements.

Hon Peter Dunne
Minister of Revenue

Media statement

Dunne: New tax bill closes loophole; simplifies GST

A tax bill tabled in Parliament today introduces changes to strengthen and clarify the GST rules, Revenue Minister Peter Dunne has announced.

One of the most important measures in the Taxation (GST & Remedial Matters) Bill would prevent so-called "phoenix" fraud schemes that undermined the integrity of the GST rules, he said.

"These schemes involve Inland Revenue refunding GST to a registered purchaser when there is no corresponding GST payment made by the supplier of the transaction because they have been deliberately wound up to avoid paying the GST.

"This practice has been of particular concern in the property sector, where GST is substantial," Mr Dunne said.

"To prevent this practice, the bill will require GST-registered vendors to charge GST at a zero rate on most transactions involving land or in which land is a component if the purchaser is also GST-registered."

The Government, following a 2009 consultation paper, had signalled its intention to close the loophole in Budget 2010 as part of tax reforms to promote fairness and integrity across the tax system, Mr Dunne added.

Other measures in the bill would make it easier for taxpayers to understand their GST obligations and reduce compliance costs, he said.

"These measures will clarify parts of the GST rules where taxpayers have experienced difficulties in accounting for GST or interpreting the legislation," Mr Dunne said.

"For example, the current change-in-use rules that apply when assets are used for both taxable and non-taxable purposes will be replaced with an approach that apportions the input tax deductions according to the actual use of goods and services.

"The GST boundary between residential accommodation, which is GST-exempt, and commercial accommodation which is not, will also be clarified.

"Similarly, the GST rules around transactions involving nominees, where a purchaser has nominated another person to receive the goods and settle the transaction, will be clarified," he said.

"To complete the GST reform package, the bill deals with an unintended timing problem for non-profit bodies accounting for GST when they supply a large asset, such as a house, for a person in need.

"This is an important change so the GST rules do not act as an undue impediment to the decisions non-profits must make in the course of their work for others," Mr Dunne said.

The remaining features of the bill are of a remedial nature and further clarify earlier legislation.

They include allowing portfolio entities a deduction for credit impairments, clarifying the tax treatment of superannuation funds under the National Provident Fund and clarifying the way emissions units allocated by the Government under the Emissions Trading Scheme should be recognised for income tax purposes.


Mark Stewart | Press Secretary | Office of Hon Peter Dunne
Cell +64 21 243 6985