COVID-19 specific GST issues
COVID-19 is likely to have a serious impact on businesses. For people who are GST-registered there are tax implications where supplies are cancelled or there is change of use of an asset. Some taxpayers may need to cancel their GST registration.
GST on cancelled supplies
- If GST is returned on a supply that is subsequently cancelled, an entitlement to a GST adjustment arises in the period in which it becomes clear that the output tax returned was incorrect, eg the period in which the reimbursement was made.
- Where a tax invoice was originally issued for the supply, a credit note for the cancellation of the supply will also need to be raised to support any GST adjustment made.
- If, as the result of the cancellation of significant or multiple supplies, a claim was made for loss-of-income (or similar) insurance, the receipt of any insurance pay-out will be subject to GST as it is a deemed supply under s 5(13) of the Goods and Services Tax Act 1985.
GST adjustments for change in asset use
- If a particular asset is not being used at all for a period of time, eg during the COVID-19 alert level 4 period, then there are unlikely to be any change of use or apportionment adjustments required for GST purposes.
- If an asset, eg a vehicle, is used both for business and private purposes and an actual use calculation is above the threshold to require an adjustment at the end of an adjustment period, primarily due to the fact that the asset could not be used for normal business use during the COVID-19 alert level 4 period, Inland Revenue will apply a practical approach to accepting calculations that provide a fair and reasonable result in the circumstances.
GST registration cancellations
- If a business shuts down due to the COVID-19 Alert Level-4 situation, it may need to de-register from GST.
- If a taxable activity has ceased, the registered person should seek de-registration within 21 days of cessation. However, whether or not a taxable activity has ceased will depend on the facts of each case.
- After a period of making regular or frequent taxable supplies, making no taxable supplies for a 12-month period may be indicative of the taxable activity having ceased. However, this will depend on whether other activities relating to those supplies or future intended supplies have occurred or will occur. For example, things done in relation to ending the taxable activity such as closing down operations or honouring warranty obligations for prior supplies are part of the taxable activity.
- Where a taxable activity has ceased and de-registration is appropriate, de-registration adjustments to return GST on any assets retained from the activity will be required.
Source document: Inland Revenue
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