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Inland Revenue

Tax Policy

Assets expenditure - Goods and services tax

Clauses 84–87

Issue: The changes should not go ahead


(Ernst & Young)

The GST changes should not go ahead. Instead, the general apportionment rules should apply. If they do go ahead, they should be deferred to allow people the chance to exclude the assets from the GST base, as proposed by an officials’ issues paper released in December 2012.


Officials note that there are differing views on how the existing rules should apply to mixed-use assets. One view is that input tax in respect of non-use time should be claimable on the basis that the asset is, at such times, available for use. Another view is that no claims should be able to be made in respect of this non-use time because the apportionment rules (section 21G(1)(a)) refer to the extent to which the goods and services “are actually used for making taxable supplies”.

Bringing some clarity to this area by providing a specific formula is considered desirable.

With respect to the submission that some registered persons should be able to exclude their assets from the tax base (as outlined in the December 2012 issues paper), this is a narrow proposal that would only affect people that hold assets in the same vehicle that also carries out some other taxable activity. This proposal was put forward as a concession to people that may inadvertently be caught in the GST net, not those that voluntarily registered in respect of entities that hold mixed-use assets.

Officials consider it would be unnecessary to delay these changes, which potentially have a broad application, to cater for a remedial amendment designed to relieve a GST burden on a small group.


That the submission be declined.

Issue: Transitional provisions and effective date of the new rules


(New Zealand Law Society, Bell Gully, New Zealand Institute of Chartered Accountants, PricewaterhouseCoopers)

There should be a transitional rule to clarify the interaction between the existing apportionment rules and the proposed rules. (New Zealand Law Society)

There should be a new transitional rule for assets acquired between 1 April 2011 and 1 April 2013. (Bell Gully)

Guidance should be provided as to what happens to assets already subject to apportionment. (New Zealand Institute of Chartered Accountants)

The proposed GST rules should apply from 1 April 2014. (Bell Gully)

Changes should only apply to assets acquired after 1 April 2013. (PricewaterhosueCoopers)


Submitters are concerned that the overlay of the proposed apportionment rules for mixed-use assets will cause confusion and additional compliance costs for registered persons with assets currently in the tax base. Of particular concern is that the proposed GST rules could result in output tax liabilities for some people who would be forced to adjust input tax claimed under the current rules.

Officials accept that overlap is undesirable. This is why transitional provisions were introduced when the new apportionment rules were introduced in 2011. However, rather than having another transitional provision for mixed-use assets, officials consider it would be simpler to have the proposed rules for mixed-use assets only apply to relevant goods and services acquired after the date of Royal assent of this bill. This means if a person purchased a bach in 2012 and has apportioned their input tax claims under the existing rules, the mixed-use asset rules would not apply to that bach, but would apply to goods and services (such as rates, insurance and furnishings) acquired after the bill is enacted. This will provide certainty to effected taxpayers, while still ensuring the new rules will apply appropriately.


That the submission regarding the changes only applying to assets acquired after the bill is enacted be accepted. This will address the concerns of other submitters.

Issue: When the rules apply


(New Zealand Institute of Chartered Accountants)

The GST apportionment rules should not apply when a person takes advantage of the exemption option for income tax purposes.


The exemption for income tax purposes is only available in a limited set of circumstances, and is generally related to assets that earn under a certain level of income. Although one of these criteria is linked to the value of the asset, it is anticipated that most people that qualify for the income tax exemption will do so because they derive significantly less than $60,000 a year in income from the asset.

If GST has to be charged on a supply when the turnover from the asset is less than $60,000 per annum, the person is either voluntarily registered, has deliberately included the asset in the same structure as a larger taxable activity, or is self-employed and owns the asset in their personal name. In any case, their involvement with the GST system, or their inclusion of the asset in the tax base will, in many cases, have been based on a conscious decision. Officials consider that, as the mixed-use asset rules are now recommended to apply only to assets acquired after the date of Royal assent of this bill, most will make this decision on the understanding that these rules will apply to them.

Further, GST returns are filed more regularly that income tax returns. It would be unusual to create rules that required people to return amounts of output tax for a mid-year return but then exempt the same supply once the end-of-year calculations had been performed.


That the submission be declined.

Issue: Private use days and output tax


(Bell Gully, New Zealand Law Society)

An asset owner should be:

  • relieved from accounting for output tax on below market rental days; or
  • allowed a scaled-back input claim for such days based on discount to market rates. (Bell Gully)

The definition of private use should exclude use where market value is paid, or the output tax liability of the owner should be reduced to the extent of the consideration provided for the use. (New Zealand Law Society)

Officials agree that it is not optimal to have output tax charged on a supply while simultaneously denying input tax for that supply.

The proposal that input tax should be able to be apportioned on the basis of the proportion that the rent actually charged relates to the market rent would be problematic. Given submissions that the assets rules more generally are too complicated, to require a registered person to work out percentages of claims for individual days could add significant compliance costs for very little difference in the overall figures produced.

On balance, officials consider that, for the purposes of the GST mixed-use asset rules, any day (or other period) where the asset in question is supplied for consideration should be treated as a business day. In practice, this would mean:

  • A period when the asset is leased to an associated person should be subject to the rules that treat supplies between associated persons as taking place at market value. This would mean the owner would have to return output tax on a market value rate even if some lesser consideration (or no consideration) was paid.
  • On a day the asset is leased to a non-associate for less than market value (but more than zero), the owner should return output tax on that lesser value. Although this allows supplies to be made to people for lower rates while still claiming input deductions, this is an existing feature of the GST system that registered persons and Inland Revenue will be familiar with.

Officials accept that this will cause the formula for GST purposes to diverge from that used for income tax in some cases. Although this is not necessarily desirable, it is anticipated that this will not be a problem for most taxpayers. The alternative would be to introduce exemptions into the GST system or otherwise change relatively fundamental aspects of the GST system – such as the ability of the supplier to set their own consideration for supplies to non-associates.

Officials therefore consider having differences in the formula for the two tax types simply reflects the nature of the two taxes and the reality that what is a desirable outcome for one tax type (in this case exempt income being derived) will not always be suitable for another.


That the submissions be declined, but the proposed rules be amended in line with officials’ comments.

Issue: Guidance on specific terms


(New Zealand Institute of Chartered Accountants, PricewaterhouseCoopers)

Inland Revenue should provide guidance on the following matters:

• What a “fair and reasonable result” is for an alternative time measurement under proposed section 20G(3). In particular, is no adjustment for GST when an income tax adjustment is made “fair and reasonable”?

(New Zealand Institute of Chartered Accountants)

• Whether the exclusion for motor vehicles and apportioned assets applies for GST.
• Whether section 20G applies to all GST-registered companies or just close companies.
• Does “input tax” cover secondhand goods or GST under section 20(3J).



Officials confirm that the policy intentions behind the issues raised are, respectively:

  • Matters such as “fair and reasonable” do not lend themselves to prescriptive and exhaustive definition and are generally determined on a case-by-case basis. However, given there are minimum thresholds built into the GST rules and the changes to the GST formula recommended above, perfect tracking with the income tax rules is not anticipated in every instance.
  • GST has a set of “standard” apportionment rules that apply to assets that are not described in proposed section BG 3. It is expected that those apportionment rules will apply to most assets, with only assets described in section DG 3 having to be apportioned using proposed section 20G.
  • Officials agree that the wording in proposed section 20G is not very clear on this point. Given the intention is to align the GST rules as closely as possible to the income tax rules, to reduce compliance costs, it is arguable that widely held companies should be excluded from the ambit of section 20G.
  • The definition of “input tax” in section 3A of the GST Act should apply to proposed section 20G. This would include secondhand goods input credits. Officials agree that the relationship between the proposed section 20G and section 20(3J) should be clarified so that output tax calculated under that section is referable to the inputs that would be able to be claimed under section 20G.


That the submissions be noted, but also that the bill be clarified to confirm that:

  • the GST apportionment rules do not apply to widely held companies; and
  • the relationship between proposed section 20G and current section 20(3J) be clarified.