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Inland Revenue

Tax Policy

GST reverse charge rules

(Clauses 7 and 8)

Summary of proposed amendments

The GST reverse charge rules for imported services are being amended as a consequence of the introduction of the apportionment rules. The amendment will tie the use of imported services to the defined terms “percentage intended use” and “percentage actual use” to ensure that appropriate apportionment of imported services takes place following the introduction of the new rules.

Application date

The amendments will apply to services imported after 1 April 2011.

Key features

It is proposed that section 8(4B) of the GST Act 1985 be amended to apply to imported services when the recipient of the supply:

  • estimates at the time of acquisition that the percentage intended use of the services is less than 95%; or
  • determines that the percentage actual use is less than 90%.


The apportionment rules set out in clauses 13 to 14 of this bill apply to apportion input tax on a particular supply to ensure that only the appropriate amount of input tax can be claimed. A fundamental feature of these rules is for there to be an amount of input tax for the rules to “attach” to.

Under the existing rules, if a registered person makes taxable supplies 95% or more of which are taxable supplies, the person does not need to apply the reverse charge rules. However, if the person then applies those services for a non-taxable use, they are required to “self-supply” the relevant portion of the services under the change-in-use rules – thereby creating an output tax liability.

If the same situation occurred under the proposed apportionment rules, the person would not be liable to apply the reverse charge (as is currently the case). However, the starting premise of the apportionment rules is that there is an original amount of input tax on the supply that is used as the benchmark for future adjustments. Therefore, when it comes to accounting for any non-taxable use, the apportionment rules would arguably not apply because there was no original amount of input tax to refer back to.

The amendment seeks to remedy the problem by deeming there to be a supply when either the percentage intended use is less than 95% or the percentage actual use falls below 90%. The 90% threshold is used to effectively factor in the 10% minimum change in use allowed under the proposed apportionment rules. Where the 90% percentage actual use test is the trigger for the liability, clause 8 treats the adjustment period in which the percentage actual drops below 90% as the time of supply, so the registered person does not have to revisit previous returns to account for the supply.

Once the supply has taken place for GST purposes, the apportionment rules set out in clauses 13 to 14 should operate in the usual manner to apportion the input tax on that supply.

It is not anticipated that these changes will have a great impact on the primary users of the reverse charge rules. Although the rules have changed from a “type of business” test to a focus on supply by supply, most users of these rules already apply change-in-use adjustments to supplies where some of the supply was used for taxable supplies. Application of the rules proposed here should therefore mean that the apportionment rules produce the same overall result as the current rules.