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Inland Revenue’s approach to time of supply has far reaching implications for GST registered persons

The Goods and Services Tax (“GST”) Act on many occasions disregards the general accounting and legal rules as to when a supply is made. Instead, special “time of supply” rules are set out in the GST Act, which determine when a supply is made or treated as being made. In certain cases the GST rules can deem a supply to have occurred, even if in reality there is no actual supply at that point in time. These “time of supply” rules dictate when GST registered persons are required to account to Inland Revenue for output tax and when input tax can be claimed in relation to the supply. We note any deduction of input tax is subject to valid documentation being available and will depend on the accounting basis of the GST registered person (i.e. invoice, payments or hybrid basis).

The general time of supply rule is deemed to be the earlier of the time an invoice is issued by the supplier or the time any payment (including a deposit) is received by the supplier. For many industries this general time of supply rule is problematic and commercially not sensible.

There has recently been some coverage in the popular press around GST and concert tickets where Inland Revenue appear to have been challenging the pragmatic, but arguably technically incorrect, position which has seen GST only being paid at the time that a concert took place, rather than at the time of the sale of the ticket by an agent.

While the details concerning specific trust account structures and any potential deductions from the concert-goers’ payments before the concert can vary on a case by case basis, there are certainly some cases where Inland Revenue’s new approach would appear to have some GST technical merit.

This may have far reaching cash flow and practical implications not only for the event industry but also other industries where payment is received either by an agent on behalf of a principal or where a deposit is paid up front with full payment only due in a later period. It is important to note that there has not been any legislative change, but rather this is the result of a change in focus by Inland Revenue.

Although there may be some scope within the current legislation to ensure the technical time of supply aligns with the practical time of supply (as explained above), the general time of supply rules will be problematic for many GST registered persons.

We recommend that you contact your Deloitte tax advisor to discuss these recent developments if your business structure involves agents receiving payments on behalf of a principal or if deposits are received upfront as a part-payment for the supply. Yet again we see this as another example of the manner in which Inland Revenue is challenging long held industry positions, in light of the tight financial times for the Government.

Tax Alert November 2012 Contents:

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