Changes to GST Apportionment

An Official Issues Paper “GST Apportionment and Adjustment Rules” has been released recently by the IRD. It requests feedback on proposed changes to the vastly complicated rules.

IRD acknowledges that current GST apportionment and adjustment rules are complex, have high compliance costs and that unexpected liabilities and compliance costs can arise because GST applies to private assets that have some business use and are owned by a GST-registered person.

Summary of proposed reforms

The ability to exclude certain capital assets from the GST registered person’s taxable activity. For example, a dwelling part of which is also used as a home office.
Removing a large number of assets from GST apportionment and adjustment rules.
- Assets costing less than $ 5,000 excl GST will be 100% GST recoverable provided that it was acquired for the purposes of making taxable supplies.
- 20% deminimis – if the taxable use of the asset is less than 20%, the asset will be regarded as non-taxable.
- Assets with 80% or more taxable use will be regarded as 100% taxable.
- Input tax deductions would still be apportioned on assets purchased for $5,000 or more (GST exclusive) with between 20 percent and 80 percent taxable use. However, a 20 percent change threshold is proposed to ensure adjustments would only be made if a major change in use occurred
- Changes are proposed to the definition of “dwelling” and “commercial dwelling” as GST apportionment issues arise when the same premises are used to make a combination of supplies (residential rental vs commercial guestaccommodation). In such cases the GST treatment depends on the definition which can overlap.
- Whether a new set of rules for dwellings should be introduced. The special rules could make house sales (including owner-occupied houses, residential rental properties and holiday homes) by a registered person who is not a property developer an exempt supply.
- Removal of GST apportionment and adjustment rules for developers including removal of concurrent use of land adjustment, where land is used for making non-taxable supplies during the development period.
- The Government is concerned there is a risk that a registered developer will acquire land, claim 100% GST input upfront and later does not return GST output tax when the development is either deferred or is not undertaken. It is proposed that a developer would be required to sell the land within 36 months of claiming the input tax credit.
- Repeal of mixed-use asset rules in s 20G, which do nothing but add complexity to GST and in some cases result in adverse GST consequences in relation to private assets.
- Expanding the wash up eligibility rules, which would enable the GST registered person to remove the asset from the tax base quicker without having to wait until the end of the second GST adjustment period.
- It is proposed that most of these changes would come into effect on 1 April 2023.

Submissions close on 27^th April 2022

March 2022