Inland Revenue has released a series of three public rulings:

1. Public Ruling BR Pub 23/01: Goods and Services Tax – Directors’ fees.
2. Public Ruling BR Pub 23/02: Goods and Services Tax – Fees of Board Members not appointed by the Governor-General or Governor-General in Council.
3. Public Ruling BR Pub 23/03: Goods and Services Tax – Fees of Board Members appointed by the Governor-General or Governor-General in Council.

The three rulings are collated with a shared commentary which applies to all three rulings here. Given many people just want the answer and not 44 pages of detail, a more concise fact sheet has been produced and is available here and Inland Revenue’s operational position for Directors/Board Members who now find them on the wrong side of GST interpretation is available here.

What follows may seem a little unintuitive, but it needs to beread knowing that the Goods and Services Tax Act 1985 (GSTA) contains a raft of very specific and prescriptive rules, including in relation to whether directorand board services are part of a “taxable activity”.

1. If a Director/Board Member is registered for GST because they have a taxable activity separate from any role as a Director/Board Member (such as some form of consulting services), GST should be charged on Director/Board services if the office is accepted in carrying on the taxable activity (i.e. there must be some corelation between the business run by the taxpayer and why they have been appointed as a Director/Board Member).
2. If a Director/Board Member does not have a taxable activity that is separate from the activity of being a Director/Board Member (even if there are multiple directorships / board memberships), the Director/Board Member is ineligible to be registered for GST. This analysis also applies if there was previously a separate taxable activity that has since ceased. For example, an individual carries on a taxable activity of being an accountant and accepts some directorships (which are offered because of their accounting skills); the accountant retires from public practice (and does not provide any ongoing services such as consulting services) but continues to hold some directorships; then the accountant is unable to remain GST registered if the only activity undertaken is directorships in their personal name.
3. If a Director/Board Member is appointed in their capacity as an employee of a third-party or a partner in a partnership, then the employee/partner does not charge GST, but if the employer or partnership is registered for GST then they should charge GST. The expectation is that any fee paid goes to the employer/partnership. This includes situations where a Director/Board Member might have a personal services company that bills for the individual’s services as a Director/Board Member, even if the personal services company does not charge the other companies for anything other than the individual’s services as a Director/Board Member.
4. If a Board Member is appointed by the Governor-General or the Governor-General in Council, GST should never be charged. All such services are precluded from forming part of a taxable activity.

The Public Rulings contain a number of examples which help explain some of the concepts above, we paraphrase some of the examples below and note that the examples are useful for illustrating the concepts involved, but are often not directly related to the actual types of situations we come across in corporate situations:

Example 1a – Eriksen runs a GST-registered business (Danes-R-Us) as a sole trader (not through a company) selling sports gear and Danes-R-Us supports a local football club. The football club asks Eriksen to join the board because of the support he/his business provides. Danes-R-Us should charge GST on board fees, as there is a link between the ongoing GST taxable activity of Eriksen and the board membership.

Example 1b – A variation on example 1a, Danes-R-Us does not have any business involvement with the football club, but Eriksen does have a personal involvement with the football club and Eriksen is asked to join the board. There is no link between Danes-R-Us and the activities of Eriksen in a personal capacity as a board member and therefore no GST should be charged

.Example 3 – Claudius is an employee of a company. The company asks him to become a director and pays a separate fee for this. Claudius cannot register for GST.

Example 4 – Ophelia is a GST registered HR consultant as a sole trader (not through a company). Ophelia accepts a board role on an Employment Council and charges fees. Ophelia should charge GST on her fees, as there is a link between the ongoing GST taxable activity of Ophelia and the Employment Council role.

Example 5 – Polonius Ltd is a GST-registered financial management company. It supplies one of its employees, Marcellus, to be a director of Osric Ltd. Marcellus does not have a taxable activity and cannot register for GST as a result of being a director. Polonius Ltd should charge GST to Osric for the directors fees. Technically, Polonius Ltd is not engaged as the director (Marcellus is), so Polonius Ltd is not charging directors’ fees but is charging for Marcellus’ services.

Example 7 – Guildenstern Ltd allows one of its employees, Laertes, to take up a directorship with an unrelated firm Thebard Ltd on the proviso that Laertes accounts for the fees received to Guildenstern Ltd. There is no contract between Guildenstern Ltd and Thebard Ltd. Guildenstern Ltd is treated as making a supply to Thebard Ltd and should charge GST to Thebard Ltd.

Example 8 – Gertrude is a partner in a GST-registered legal partnership. Gertrude is elected to the Board of a client. The directorship services are deemed to be supplied by the partnership and GST should be charged by the partnership.

Inland Revenue has released an operational position that will apply to any Directors/Board Members who are GST registered in relation to these activities when they should not be. Inland Revenue is not proposing that any retrospective adjustments need to be made, rather than the Director/Board Member should look to deregister from GST. The Inland Revenue has set a date of 30 June 2023 for this to be undertaken.

When a taxpayer deregisters from GST, they are essentially deemed to sell themselves any goods and services they held as part of the taxable activity. This deemed transaction takes place at market value. So, for example, if a Director had claimed back GST on a laptop or car used for providing directorships then GST needs to be returned on the market value of those assets.

It is likely that any Directors/Board Members that operate through a personal services company and charge over $60,000 per year will still have to remain GST reqistered.

For more information please contact your usual Deloitte advisor.