GST - A Practical Guide
Alastair McKenzie's popular book GST - A Practical Guide is widely considered to be the authoritative New Zealand text on GST.
The new edition of this popular book provides in-depth coverage of special problem areas and contentious issues regarding the application of the Goods and Services Tax Act 1985.
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The new cross-border remote services rules and the existing reverse charge rules: how do they compare?
The reverse charge and remote services regimes are both responses to technological advancements – ie, the advent and increasing use of the internet as a medium for supplies. The reverse charge rules took effect in 2005, and the remote services regime in 2016, and it is not always apparent how the two sets of rules interact to impose GST on the supply of services from an offshore provider into New Zealand.
In an attempt to provide a broad description of the interaction between the two sets of rules, the author has compiled the table below. It presents a broad brush identification only; given the complexities of the two regimes, it is necessary to have regard to the legislative provisions when considering individual circumstances.
The table assumes that there is an offshore provider whose services are not physically performed in New Zealand but are received here. Also, that the supplier has registered for GST (under the remote services rules), that there is no proxy operator involved, and that the services are not GST-exempt or zero-rated (and do not comprise gambling services).
(1) If the non-resident supplier has a New Zealand agent, and those two parties have agreed that the agent will account for the GST, 15% GST applies. Of course, the non-resident can claim input tax on New Zealand-based expenses if it opts to zero-rate the transaction (subject to the exceptions for insurance supplies).
(2) The legislation provides for the supplier to have the present option only if the recipient is to apply the services “for the purposes of carrying on the registered person’s taxable activity” (s 8(4D)). This wording suggests that the present option does not apply in the case of minority taxable use of the service by the recipient (such use arguably not being “for the purposes of” the recipient’s taxable activity). However, Inland Revenue commentary asserts that the present option can apply even in the case of a minority taxable use by the recipient of the service. (See, for example, Tax Information Bulletin Vol 28, No 6, July 2016 at 19, emphasis added, “GST-registered recipients of remote services may not identify themselves as a GST-registered business, or provide their GST registration number or a New Zealand business number, if they intend to use the service wholly for non-taxable purposes.”) Inland Revenue’s assertion is supported by the modified reverse charge rules (which apply in such cases and so shift the GST impost from the supplier to the recipient). Accordingly, the better view is that the present option applies to minority taxable use.
(3) Normal reverse charge rules apply if the supplier opts to account for no GST. Section 20(3JC) prevails, in conjunction with modified reverse charge rules, if the supplier opts to zero-rate.
(4) Full output tax and partial input tax (to the extent of taxable use) apply if the supplier opts to account for no GST. Partial output tax (to the extent of non-taxable use) applies if the supplier opts to zero-rate. The two different approaches produce the same net outcome: see “New Zealand recipient is GST-registered” above.
(5) A GST-registered recipient should not be advising the supplier that they are GST-registered if the recipient is applying the service wholly to non-taxable use. See note (2), fourth sentence, above.
It is emphasised that the remote services regime applies only when the services are physically provided overseas; that is, are not physically performed in New Zealand by a person who is in New Zealand. (The reverse charge regime might typically also apply in such circumstances, but conceivably could also apply when a non-resident operator visits New Zealand and performs services here.) Different rules prevail when a non-resident supplies services which are physically performed in New Zealand.
The cross-border remote services rules and the reverse charge rules are discussed in depth in the new edition of Alastair McKenzie’s GST – A Practical Guide.
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In addition to covering the broad framework and operation of GST in New Zealand, the book provides in-depth coverage of special problem areas and contentious issues regarding the application of the Goods and Services Tax Act 1985.
The new edition has been comprehensively updated and includes:
- changes to the law allowing bodies corporate to become GST registered
- new rules imposing GST on remote services supplied by non-residents
- the regime allowing non-residents to register for and claim back GST
- the GST rules that apply to mixed-use assets.
The text is fully updated to include all case law and Inland Revenue rulings and statements released since the publication of the ninth edition in 2012.
For more information or to order your copy of the new edition of GST - A Practical Guide:
Visit: books.wolterskluwer.co.nz
Call: 0800 500 224
Email: nz-cchbooks@wolterskluwer.com