GST – special transactions

You may have encountered some transactions where you weren’t sure about the GST treatment. If you haven’t (yet), you may in the future.

The GST transactions and our explanations outlined further below are for you to recognise that these may require additional attention. They are the most common situations we see, but by no means is this a comprehensive list.

GST can be a minefield so if you’re unsure about any aspect, please contact your accountant and legal advisor.

Zero-rated supplies
Exempt supplies
Digital service providers
Donations and koha
Reminder

Zero-rated supplies

Zero-rated supplies are still subject to GST, but at a rate of 0%, not 15%. This is different to exempt supplies – they are not subject to GST at all.

Imported and exported goods

The most common reasons for having zero-rated supplies are the importation and exportation of goods.

  • When selling overseas, your invoice needs to show GST at 0%. This applies to online sales as well, but you must keep documentation which proves that the customer was overseas at the time of sale.
  • If you purchase overseas goods (except Australia), you cannot claim GST on the supplier’s invoice. Customs may charge import duty and/or an Import Transaction Fee which are both tax-deductible expenses. They will also charge you GST which you can claim back via your GST return. It’s not a straight-forward entry, so feel free to contact Beany Support for assistance.
    • Australian invoices may have a separate line showing GST, but you cannot claim this either. 
Sale of a business (going concern)

There are three ways of selling a business:

  1. Selling the business assets
    • You must pay GST on the sale price of assets sold
  2. If the business is a company, you can sell the shares
    • No GST impact
  3. Selling the business as a going concern*
    • If the seller and purchaser are both GST-registered, the sale can be zero-rated. This means the seller does not need to pay GST on the sale price, and the purchase cannot claim GST on the purchase.

All sale and purchase agreements need to be carefully worded. Before signing anything we strongly recommend you have the agreement reviewed by a lawyer and accountant. If certain aspects are not addressed or unclear, the repercussions could be disastrous.

* A going concern is where the business’ normal operations continue after the sale. A good example is where a restaurant business is sold. The restaurant carries on (even though it may change the menu). The only indication that the business has changed hands could be a sign “Under New Management”. If the business has a customer list, this will be taken over by the new business owner.

Example – selling business assets vs a going concern

If a farmer sells his farm, including house, land, sheds, livestock, plant and equipment. This is a going concern and can be zero-rated if the purchaser is registered for GST. He’s sold a farming operation.

If he only sold the land and house but kept everything else, the farming business has not been sold. It’s just the sale of assets – these may be subject to GST (see our section on land sales below).

Services performed outside New Zealand

An example of this could be a New Zealand newspaper using a third-party publishing company which is based overseas. The newspaper cannot claim GST on its payments to the reporter.

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Exempt supplies

Exempt supplies are not subject to GST. They’re not zero-rated, GST just doesn’t apply. A slightly cynical way of looking at it, is that as the customer you don’t actually receive any goods or services. Examples of these are:

  • Bank charges
  • Interest received or paid
  • Penalties and fines
  • Certain financial planning fees
  • Mortgages and other loans
  • Residential rental property income and expense
  • Sale of a residential rental property

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Digital service providers

We assume that businesses supplying remote services such as digital content, apps, software, subscriptions, and website design, receive more than $60,000 from sales to New Zealand customers. They are therefore legally required to register for GST in New Zealand and charge GST.

We are therefore of the view that, in general, GST can be claimed on these types of expenses. Our provisos are that the less well-known and/or smaller providers may not be registered (so you cannot claim GST), and that you should obtain supporting documentation for the larger transactions (ie, those which aren’t subscription services).

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Donations and koha

If a GST-registered organisation receives a donation with no strings attached, it is not subject to GST. By “no strings attached”, we mean that the person donating has done so voluntarily and expects nothing in return.

However, if it sells goods (fund-raising activities for example) or performs services (this could be a tour), GST must be applied and declared with Inland Revenue.

Businesses donating to other organisations cannot claim GST on this expense.

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GST on land transactions

Be afraid. Be very afraid.

Ask any tax specialist and they’ll have a horror story in their ‘land tax gone bad’ file. We’ve seen more than our fair share of disasters and usually the conversation starts with, “I’ve just signed an unconditional contract and the real estate agent/best friend/someone I met in the pub who does this all the time [delete as applicable] tells me that everything’s fine”.

No.

No disrespect here to real estate agents – land tax is an extremely complicated area and even accountants get this wrong from time to time. One of the key issues is that what might work for one client does not work for another because of different scenarios.

Inland Revenue has a good “yes/no” flow diagram which is extremely helpful. They have a disclaimer though, in the small print:

Disclaimer: This flowchart is a guide only and cannot be relied upon or substituted for professional advice. Nothing in this flowchart is binding on Inland Revenue. Leases aren’t covered. If there are other items included in the sale, please consult a tax advisor.

We cannot emphasise this enough – if you’re signing a sale and purchase agreement, take 10 seconds to consider this – should I just run this past my accountant?  If it’s anything but buying the family home, the answer is always yes. The cost of getting this wrong can be HUGE.

Reminder

  • If you are not registered for GST, you cannot add 15% GST when selling a good or performing a service. Remember that the other person cannot claim the GST on the expense.
  • If you receive goods and services from an unregistered business, you cannot claim GST even if you are registered (except if they’re second-hand goods).

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