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Inland Revenue

Tax Policy

Application of section 19D to non-profit bodies

(Clause 92, 93, 94 and 95)

Summary of proposed amendments

The GST legislation will be amended to exclude non-profit bodies from the application of section 19D when the risk of tax avoidance is low, therefore allowing them to operate without the additional cost of having to fund the full cost of GST upfront.

Application date

The amendment will apply from the date of enactment.

Key features

New section 19D(2B) will be introduced to exclude supplies made by a non-profit body from the application of section 19D(1) in the following circumstances:

  • when the recipient is not GST-registered; and
  • when the recipient is either not intending to use the goods and services for the purposes of carrying on a taxable activity or intending to use the goods and services for the purposes of carrying on a taxable activity, only after the full payment for the supply is paid to the supplier.


Differences in the accounting practices for GST can result in timing advantages being deliberately created when a registered person who accounts for GST on a payment basis makes a supply to another registered person who accounts on an invoice basis. In these situations, the payments-basis supplier accounts for GST when payment is received, while the purchaser may claim an input tax deduction following receipt of the tax invoice.

The aim of section 19D is to limit taxpayers’ choices of accounting bases when the application of GST accounting principles could give rise to tax-base risks. Specifically, section 19D requires GST-registered suppliers accounting for GST using the payments basis to use the invoice basis when the amount payable for a supply of goods and services is $225,000 or more (including GST) and payment by the customer is deferred.

Section 19D applies to all taxpayers. The universal application of section 19D may have an unintended detrimental effect on some non-profit bodies. Thus, a non-profit body may agree to supply an asset, such as a house, to an individual in need. Often the agreement will stipulate that the recipient of the asset will make a number of payments over a period of time and will receive the title in the asset when the asset has been paid for in full.

These types of arrangements may trigger section 19D, and require the non-profit body to account for GST on an invoice basis. This would result in the non-profit body having to account for the GST on the entire purchase price at the outset, creating a significant cost to the non-profit body. Consequently, the operation of the rule may discourage non-profit bodies from providing goods and services over a certain value.