A Week in Review

GST Registration Effective Date

SPS 18/03 has been released by IR, to provide the Commissioner’s views on a person’s effective GST registration date, and includes commentary on how she will apply her discretion, when the legislation provides for an alternative date to be used.

Most of you will be aware that there are two types of GST registration, essentially voluntary or involuntary, the latter requiring you to register for GST if:

o for the current month and the preceding 11 months your supplies have exceed the $60k registration threshold (unless they are not expected to for the coming 12 month period); or,
o for the current month and the following 11 month period, you expect your supplies will exceed the $60k registration threshold.

Naturally the Commissioner always has the benefit of hindsight, and where you have failed to register at a time required under either of the aforementioned tests, then your registration can be backdated to the appropriate date. It should be noted that under the legislation, the Commissioner can permit a later registration date where she considers it is equitable to do so, however this discretion is rarely applied.

When it comes to a situation of a person registering for GST on a voluntary basis, usually the effective date is a prospective one to the date the registration application was filed. While SPS 18/03 suggests that “in very limited circumstances” a retrospective effective registration date will be permitted, our practical experience would suggest that IR is in fact quite generous with this discretion, provided that no more than 6 months backdating has been requested.

The reason behind the comment “in very limited circumstances”, is because unlike income tax deductions where the timing of the claim in the correct income year is very rigid, an input tax deduction can simply be claimed in any later GST return period (within the automatic statutory time limit of 2 years, potentially extended to 8 years), with the main proviso being that the amount has not been claimed already in an earlier return period. Due to the flexibility of the claiming rules therefore, the Commissioner is more likely to set a prospective registration effective date, where the person is applying for a retrospective date simply to ensure they do not miss out on a potential input tax claim.

The most common scenarios we encounter with respect to retrospective effective GST registration dates, is when dealing with land transactions, and attempts by the purchasing party to ensure the transaction is subject to the compulsory zero-rating legislative provisions, a core requirement of which is that both parties to the transaction are GST registered at settlement date. When considering applications of this nature, SPS 18/03 states that the Commissioner must be satisfied that both parties will be treating the transaction consistently for GST purposes. Consequently, she will expect to see that the requirements of s.78F of the GST Act have been dealt with adequately in the agreement for sale and purchase – usually a statement by the purchasing party that they expect to be a GST registered person, at or before settlement date. SPS 18/03 also provides further narrative on other potential issues with respect to land transactions that may arise if a request for retrospective registration is granted.

Finally, when it comes to voluntary registration, IR will not grant a request for registration (although from practical experience we know they usually do automatically and its only as a result of a subsequent review that the hot tap is turned on) unless they are satisfied the person is actually carrying on a taxable activity. Interestingly in this regard, it is often about you proving your intention. I say “interestingly” because when I was a young fellow in my early years of my working life (admittedly some time ago now!), both at the Revenue and then having changed sides to greener pastures, everything was about a persons stated verbal intentions, and the exposure to being “hung” just by a slip of the tongue as to your real plans. 

Times have certainly changed however, and frequently what you say is often never enough on its own, without some hard objective evidence to back you up.

GST input tax claims in respect of residential dwellings a client is going to use for AirBnb activities is a classic example of late. Since the land has often been acquired from a non-registered person, the client is looking to make a second-hand goods claim and files their GST return accordingly. The size of the refund usually dictates an automatic risk review by IR, and naturally all the IR investigator sees is a person essentially buying a private house. Immediately they are on the defensive (because everyone is dodgy these days), so be warned that simply telling them you are going to be operating an AirBnb activity will often not be enough, and it would be prudent to have been a little more proactive by creating a little objective evidence file, containing such things as records of conversations with local letting agents of the AirBnb opportunities in the location, perhaps a property management contract if another party is going to run the activity on your behalf, initial communications with AirBnb itself about become a potential provider on their site etc. 

If you require any assistance with these types of claims, please do not hesitate to contact us.

SPS 18/03 itself has an effective commencement date of 19th July 2018.

Richard Ashby BBus, CA, CPA
PARTNER
Em: [email protected]
Ph: +64 9 365 5532
Fx: +64 9 309 5260
Mb: +64 21 823 464