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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What are the GST issues for solicitors?
The tenth edition contains new commentary dealing extensively with legal services and the associated GST issues that have arisen in practice. The following is a summary of this chapter which highlights the main problem areas solicitors encounter.
GST issues arising from conveyancing form the basis of many professional indemnity claims.
Know the risks
An often-cited “statistic” is that GST issues arising from conveyancing are the leading area for solicitors’ professional indemnity claims. Reported cases illustrate how solicitors are at risk from GST issues.
GST case law
Solicitors have had to honour their undertakings to pay their client’s GST. This has applied both when the undertaking was given by the purchaser’s solicitor to the vendor’s solicitor, and to an undertaking by a vendor’s solicitor to Inland Revenue to pay the client’s GST on the sale.
Solicitors failing to advise their clients of a GST liability also feature. The Courts have found (on occasions) that solicitors who have negligently failed to alert their clients to a pending GST liability, or who have breached an undertaking to pay their clients GST, have no or a reduced claim under their professional indemnity insurance.
So not only is GST and conveyancing the leading area for professional indemnity claims, but solicitors cannot assume automatic and full indemnity will apply under their professional indemnity policy.
The Courts have also confirmed that where a law firm has a trust company, that company is liable for the GST where it is a trustee or co-trustee. So they have upheld the Commissioner’s statutory demand against the trust company for payment of the outstanding GST of one of the trusts, and consider that liquidation of the trust company is applicable.
Other GST cases address solicitors and their client’s entitlement to input tax. They also establish that indemnity costs awarded in civil litigation are usually calculated on a GST-exclusive basis if the successful party is GST-registered, and GST-inclusive if not registered. Disbursements awarded for all civil litigation are treated on the same basis. A party that is not able to recover GST should therefore inform the Court of that fact.
From 1 April 2017, conveyancing services provided to a non-resident in respect of New Zealand land transactions are no longer zero-rated (i.e, attract 15% GST). Conversely, conveyancing services provided by a New Zealand practitioner in relation to overseas land, are zero-rated (even when provided to a New Zealand client). A special agency rule also applies from 1 April. It enables a law firm to claim input tax on client disbursements such as court fees and land transfer fees (while accounting for output tax on the on-charging of those disbursements); Inland Revenue considers that a law firm can only claim input tax on those disbursements if it activates the agency rule via documented agreement with its client.
Non-resident law firms providing services to New Zealand clients might have to register and account for New Zealand GST under the “Netflix GST rules” which took effect in October 2016.
Inland Revenue rulings
Inland Revenue rulings cover (inter alia) the GST implications of apportioning rates and rent on settlement of a conveyance, and of damages.
For a fuller description of all of these issues, see Alastair McKenzie’s GST – A Practical Guide, 10th edition
Find Out More
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.