GST: Practical advice on getting it right

Transcription

1 GST: Practical advice on getting it right 1. GST FRAMEWORK AND THE KEY PRINCIPLES OF GST 1 Key framework and obligations 1 Fundamental principles of GST: what is supplied, to whom and for what price? 3 Contractual basis 3 Consideration 3 Benefit 5 Conditions 5 Taxable activity Registration 5 2. TIME OF SUPPLY 7 Payment 7 Deposits 8 Summary 9 Invoice (document notifying an obligation to pay) 10 Unconditional agreements 10 Staged sales 12 Documentation tips staged sales 14 The relevance of accounting basis 15 Section 19D deferred settlements WHEN IS A PROPERTY DEVELOPMENT A TAXABLE ACTIVITY? 17 Lack of a commercial flavour is an important aspect 17 The Commissioner s Policy on GST and subdivisions 18 Cases and Examples 18 Decisions and facts of the cases after Newman 19 Case 19 Examples in the Commissioner s Policy Statement after the Court of Appeal s decision 20 in Newman Fact situations 20 Obtaining certainty CO-OWNERS AND PARTNERSHIP PROPERTY 23 Co-owners 23 Unincorporated bodies s Is leasing land a taxable activity? 24 Are the co-owners an unincorporated body for the purposes of s 57? 26 Relevant binding rulings 29 Tax law applicable 30 Partnership property 30 Identifying what is partnership property 30 When is land a partnership asset? 30

2 What to do if forming a partnership and the partners have assets they may not want 31 to commit to the partnership? 5. GOING CONCERNS AND GST OFFSETS 33 Going concerns 33 Section 78E 34 Practical guidelines in relation to going concerns 35 GST offsets 36 Practical matters relating to GST offsets - the dos and don ts DEALING WITH THE PURCHASER S INTEREST 39 Introductory remarks 39 Aspects not covered in this paper 40 The context of the issue and the need to be guided by contractual principles 40 Different ways of dealing with the purchaser s interest 41 Nomination, assignment, sub-sale and novation: The key principles 42 Nomination 42 Assignment 46 Sub-sale 47 Novation 48 Impact of s 11 of the Contractual Remedies Act 1979 ( CRA ) 48 Practical guidelines 49 Should the law be reformed? 50 The piggyback principle 50 Practical examples 50 Comments 50 Novation of the contract is the best solution 51 IRD view? 52 Suggested approach 52 Another risk area - Unregistered vendor sells to unregistered purchaser who 52 nominates a GST-registered nominee Summary Table Dealing with the purchaser s interest CHANGE OF USE ADJUSTMENTS 55 Principal purpose determines whether an input tax deduction is claimable in the first 55 place What happens when goods acquired for taxable purposes are subsequently applied for 55 non-taxable purposes (i.e. house property is rented out pending a sale)? How do you calculate the adjustments in s 21(1)? 56 CIR v Lundy 56 What is position when goods applied for non-taxable purposes are applied for a 57 taxable purpose? When the property is eventually sold 57 Special case - the application of s 14(d) the five year rule 58

3 Relevant interpretation statement PRIORITY OF PAYMENTS MORTGAGEES 61 Mortgagee Sale 61 The calculation of the GST payable as an expense occasioned by sale 61 Can the mortgagee claim an input credit? 61 What is the position where the sale by the mortgagor is at the direction of the 62 mortgagee (but not a mortgagee sale)? Where the sale is a sale of a going concern 62 Mortgagee in possession Is the position different? 63 What happens when the Commissioner places an attachment notice on a solicitor s 63 trust account in relation to sale proceeds? Who gets paid first? The Commissioner or the Mortgagee? If a solicitor holding funds in a trust account, after a sale where they have given an 64 understanding to the mortgagee, holding an amount payable to the mortgagor? When the solicitor for the vendor receives the sale proceeds who is the amount 64 payable to? Money held in joint account 64 Receivers THE COMMERCIAL V RESIDENTIAL DWELLINGS DISTINCTION 67 Background 67 Proposed changes and the approach taken in IS The status of GST exemptions 68 Competition aspect 69 Third party managers 69 Multiple occupancy test 69 Potential consequences for taxpayers CONTRACTUAL/DOCUMENTATION ISSUES: RECTIFICATION MISTAKE 71 Introduction 71 Expressions as to GST in the contract price 71 Overview 71 Summary of the principles 72 Where the contract does not refer to GST 73 Plus GST (if any) 74 When contract is stated as being exclusive of GST 74 Contract price is specified as being $X (to be zero rated for GST) 75 What if there is no original agreement as to the GST position but there is a 76 subsequent one? Tax invoice and settlement statements 76 Tax invoices and invoices 76 Settlement statement 77 Tax Invoice requirements 77

4 Other important documentation issues 78 GST date in contract - what does it mean? 78 Warranty issues 79 Going concern clause in ADLS ASAP of Real Estate (cl 13) 79 If you agree to a going concern supply (or vice versa) make sure you follow through 80 in the document Remedies outside the GST Act 80 Rectification 80 Contractual Mistakes Act Fair Trading Act Recent GST cases in the area of mistake and rectification 85 Introduction 85 Clements v Singh (2002) 20 NZTC 17, Sunnylea Farms Limited v Gray (2004) 21 NZTC 18, Section 6 Contractual Mistakes Act CANCELLED CONTRACTS AND CREDIT NOTES - FORFEITED DEPOSITS 91 Cancelled contracts 91 Preliminary issues and credit notes 91 Recent case law on cancelled contracts 93 Case W9 (2003) 21 NZTC 11, Case W11 (2003) 21 NZTC 11, IRD s practice statement in relation to the GST consequences of cancelled contracts 98 Forfeited deposits Some final comments and overseas case law developments TRUSTEE AND GST LIABILITIES 101 Trustee is personally liable for the Trust s GST 101 Solicitor liable for failure to advise that GST payable 101 AMP General Insurance Limited v Macalister Todd Phillips Bodkins SECOND-HAND GOODS & ASSOCIATED PERSONS 105 What is a second-hand good? 105 When can an input credit be claimed in relation to second-hand goods? 105 Why do we need the second-hand goods input credits? 106 Why do we need the limit for transactions between associated persons? 106 At what stage can an input credit in relation to second-hand goods be claimed? DEREGISTRATION 111 What exactly is a plan for tax purposes? ILLUSTRATIONS AND SPECIAL CASES 117 GST 101, or British Railways Board v Customs and Excise Commissioners Focus on 117 what the supplier is actually supplying Iliffe & Anor - Monies passing under a contract are not always consideration for a 118 supply Compensation payments/settlements 119

5 General principles 119 Partial settlements 120 Inadvertent payments 121 Introduction 121 Payment 121 Level of connection between the payment and the supply 121 Payments by mistake 121 Conclusion 122 Amalgamation of Lots 123 Secondhand goods deductions 123 APPENDIX Chapter Discussion of the key case law 125 APPENDIX Chapter Characteristics of dwellings 133 Characteristics of commercial dwellings 133 APPENDIX Chapter Clause 12 of the ADLS ASAP of a Business (3 rd ed, 2005) 135 Clauses 12 and 13 ( Goods and Services Tax and Supply of a Going Concern ) of the 135 ADLS ASAP of Real Estate (8 th ed, 2007)