Chapter 3 - Determining location

3.1 As we have stated, in order for services to be zero-rated the supplier must have knowledge of the location of the recipient at the time the services are performed. However, this may not always be possible such as in situations where the non-resident visits New Zealand during the relevant period of services on a matter unrelated to the services being provided.

Knowing whether the non-resident consumer is in New Zealand

3.2 This issue concerns the second requirement of section 11A(1)(k) of the GST Act:

The recipient must be outside New Zealand at the time services are performed.

3.3 In certain situations the supplier may not be aware that the recipient is in New Zealand during the time the services are performed. This can often occur when services are performed over an extended period of time.

3.4 In example 2 the immigration consultant is inadvertently in breach of the GST Act as the immigration fees are zero-rated despite Jim’s presence in New Zealand at the time the services were performed. This does not appear to be a fair or appropriate outcome as it is not reasonable to expect that the consultant would have knowledge of Jim’s presence in New Zealand.

3.5 Although example 2 specifically relates to the immigration industry it is conceivable that this situation may arise for other suppliers that provide services to non-residents, especially when services are provided over a prolonged period of time.

3.6 It is also worth noting that if the consumer was a non-resident company or unincorporated body, the exemption under section 11A(3) could apply, as the presence in New Zealand is not effectively connected to the suppy.

Suggested solution

3.7 Officials suggest that services supplied to non-residents remain zero-rated even if a non-resident visits New Zealand, as long as the non-resident’s presence in New Zealand is not in connection with the services performed.

3.8 This approach is aligned with the exemption for non-resident companies and unincorporated bodies under section 11A(3) of the GST Act. However, the requirement, under section 11A(3), that the non-resident consumer has a minor presence in New Zealand should not in our view apply to individuals. An individual who is in New Zealand for a purpose related to the services being provided can be regarded as consuming the service in New Zealand, compared with a representative of a large non-corporate whose presence may not be reflective of the overall presence of the corporate.

3.9 To the extent an alignment with section 11A(3) is proposed, it may be unclear whether the non-residents presence in New Zealand is in “connection” with the service. Therefore, officials suggest that the non-resident’s presence in New Zealand would only qualify for the exemption if the presence was not in “direct connection” with the service.

3.10 Officials consider that in the above scenario, and if Jim was acting independently (on his own accord without the involvement of the immigration consultant), Jim’s visit would not be considered to be in direct connection with the services being performed. However, if the immigration consultant was involved in the interview process, the visit could be in direct connection with the services performed. Ultimately, whether or not the exemption will apply will be based on the facts of the particular case.

Australian approach

3.11 Similarly to New Zealand’s current zero-rating rule, the Australian legislation makes no explicit exemption for a minor presence which is not in connection with the services provided.

3.12 The Australian legislation states that supplies are GST-free if the supply:

is made to a recipient who:
(a) is not an Australian resident; and
(b) is not in Australia when the thing supplied is done;
other than a supply directly connected with goods situated in Australia when the thing supplied is done, or with real property situated in Australia. [10]

3.13 However, in an Australian tax ruling “not in Australia” is interpreted more broadly:

… “not in Australia” should be interpreted in the context of the supply in question. The expression “not in Australia” requires in our view that the non-resident or other recipient is not in Australia in relation to the supply. [11]

3.14 This suggested approach in this paper is broadly aligned with the Australian approach.

Further considerations

3.15 In addition to the suggested rule, we have considered whether a “reasonably foreseeable” test is required, similar to the test in section 11A(2)(a) of the GST Act. That is, if the tax treatment could be based on whether it was reasonably foreseeable at the time the services were performed that the non-resident was not present in New Zealand, and if present, the presence was not in connection with the services being supplied.

3.16 A “reasonably foreseeable” test could bring greater certainty when determining the tax treatment of supplies. However, officials are aware of the difficulty in applying a subjective test and it is expected that, with the suggestions we are making, in the majority of situations a test of this nature may not be necessary. Submissions on this point would be helpful.

Submission points

3.17 Officials would like to get a better understanding of whether this issue is a problem in practice, particularly outside the immigration service industry. If this is a problem in practice, is the suggested solution appropriate to resolve the problem. Would it be workable in practice, or likely to create unnecessary uncertainty in its application?

10 A New Tax System (Goods and Services Tax) Act 1999, 38-190.

11 Goods and Services Tax Ruling 2004/7, paragraph 184.