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Inland Revenue

Tax Policy

Chapter 3 - Preventing timing mismatches – strengthening the application of section 19D

Proposed change

Section 19D requires invoice-basis accounting for certain transactions. The proposal is that this would be changed so that input tax deductions from these transactions would only be able to be claimed at the time when payment is made by the recipient.

3.1 Because of differences in the accounting practices of different businesses, the GST Act allows differing accounting bases and filing frequencies. Since parties to a transaction may not be using the same accounting basis, a GST-registered person accounting for GST using the payments basis may make a supply to a GST-registered person who accounts for GST using the invoice basis. In these situations, the payments-basis supplier must account for GST only when payment is received, while the purchaser may claim an input tax deduction following receipt of the tax invoice. These differences in accounting basis may be deliberately used in a small number of cases to obtain a tax benefit by deferring the payment of output tax for a significant period of time or even indefinitely.

3.2 The aim of section 19D is to limit the taxpayer’s choice of accounting basis when the application of the GST accounting principles could give rise to such tax-base risks. Specifically, section 19D requires GST-registered persons accounting for GST using the payments basis to use the invoice basis when high-value transactions are involved. These are prescribed as being when the consideration payable for a supply of goods and services is $225,000 or more (including GST) and payment by the customer is deferred under the agreement for more than one year.

3.3 The government proposes better targeting section 19D by having it apply to the recognition of input tax deductions instead of the recognition of output tax. Under the proposal, input tax deductions would be limited to one-ninth of the payments made by the recipient. Section 19D will still apply to transactions that exceed $225,000 and will continue to be limited to situations when the contract defers payment for more than one year.

3.4 The amended provision would not require recipients to change their current accounting basis but, as with the current provision, would simply alter the basis on which recipients may claim input tax in relation to a supply that is subject to the provision. Section 19D would not apply in the event that the supply was subject to the domestic reverse charge.


Sharon agrees to sell machinery to Bruce for $300,000. Under the contract, Bruce must pay a $30,000 deposit on signing the contract and will pay the balance on settlement in 14 months. Bruce accounts for GST on the invoice basis.

In the taxable period when the contract is signed, Bruce can claim an input tax deduction of one-ninth of the deposit ($3,333). He will be able to claim the rest of the input tax deduction when he makes the subsequent payment of the purchase price on settlement.