IR’s GST reforms need safe harbours, transitional rules and guidance

The article is relevant to members in New Zealand and was current at the time of publication.

New Zealand’s Inland Revenue (IR) is proposing a series of Goods and Services Tax (GST) reforms, which it says, “would improve certainty, efficiency, integrity and fairness of the GST rules”.

Releasing its 87-page exposure draft interpretation guideline Current GST issues for consultation in May, IR said that while the GST system generally works well, some parts produce outcomes that do not reflect the underlying policy intent, and technical changes could improve the way it operates.

These include changes to the current definition of “dwelling” and “commercial dwelling” in the Goods and Services Tax Act 1985, the rules around electricity exported to the grid by residential premises, the GST treatment of non-New Zealand residents and GST being levied on some services supplied to non-resident businesses.

CPA Australia is broadly supportive

In a submission paper lodged with IR in July, CPA Australia said it broadly supports the proposed GST amendments, “particularly where they improve certainty, reduce compliance costs and better align the rules with modern commercial practice”.

“However, we recommend that Inland Revenue adopt clear safe harbours, proportionate transitional rules and practical guidance to ensure the reforms remain workable for businesses, advisers and not-for-profit providers,” the CPA Australia submission noted.

Dwellings, commercial dwellings and housing arrangements

CPA Australia supports targeted GST amendments for transitional housing, student accommodation, homestays and farm stays, but cautions against broad changes to the quiet enjoyment test.

“Whether accommodation is exempt from GST depends on this legal concept of quiet enjoyment, which is deceptively tricky in terms of how that is applied,” says Angus Ogilvie FCPA, Managing Director of Generate Accounting Group and chair of CPA Australia’s NZ Tax Committee.

“The purpose of these changes is really to give more certainty around the definitions.”

Ogilvie says IR’s proposed clarification to make transitional housing GST exempt makes sense, noting that self-contained accommodation provided to people in need should be treated consistently with its purpose of providing a home.

Student accommodation, on the other hand, remains more technical, Ogilvie says, because it is generally treated as a commercial dwelling, and that clearer definitions would help reduce uncertainty. 

Meanwhile, in relation to Māori housing, he says collectively owned Māori land can involve many shareholders and complex occupation arrangements, with homes often built for community use or for older members rather than as investment assets.

“I think the fact that there’s some suggestions around making that GST exempt is just common sense. The proposals are really around making the GST definitions easier to apply rather than using the quiet enjoyment test.”

Residential solar electricity exports

CPA Australia supports zero-rating surplus residential electricity exported to the grid by GST-registered persons, together with simplified taxable supply information requirements, to reduce low-value compliance costs.

Ogilvie says IR’s proposal for household solar generation to be GST exempt is a practical response to the way households now interact with the electricity network.

“Where homeowners export surplus solar electricity back to the grid, the issue is whether those payments should create GST registration or compliance obligations,” he says. “IR’s proposal would help avoid imposing disproportionate GST obligations on ordinary households for what are tiny amounts.”

Cross-border issues

CPA Australia supports narrowing the resident definition, so non-residents are not treated as residents merely because they work temporarily at client, shared or event-based premises in New Zealand. 

In addition, CPA Australia supports limited relief from GST registration where zero-rated exported services produce no net revenue benefit as well as zero-rating core business event services supplied to verified non-resident businesses to improve competitiveness and reduce compliance costs.

“Cross-border GST issues can be complex for overseas businesses interacting with New Zealand customers or suppliers,” Ogilvie says. 

“It’s important to provide clearer rules on when overseas businesses should be within the New Zealand GST system and when relief should be available.”

Correcting minor GST errors

IR has proposed a more coherent framework for correcting errors and inaccuracies in GST returns to resolve problems with the current rules.

CPA Australia supports a clearer two-track correction framework for single-person errors and multi-person adjustments, with more equitable self-correction thresholds.

“The framework should accommodate automated systems, high-volume minor errors and revenue-neutral business-to-business corrections without unnecessary retrospective amendments,” CPA Australia’s submission states.

E-invoicing and modern GST administration 

CPA Australia asserts in its submission that digital administration can deliver benefits, but only if the transition is clear, practical and supported by appropriate guidance.

Ogilvie says that e-invoicing is an important part of modernising GST administration and that he supports initiatives that improve accuracy, reduce manual processing and make compliance easier for businesses.

However, he also notes that implementation should be proportionate and take account of the capabilities of smaller businesses.