GST at 40, Officials seek views on reform priorities

By Rachel Hale & Allan Bullot
 

As the 40th anniversary of the commencement of GST in New Zealand approaches, the Inland Revenue have given an early gift with the Officials’ Issues Paper ‘Current GST Issues’. The Issues Paper is a mix of some good ideas, some unhelpful proposed solutions and a number of issues that most taxpayers will have had no idea even existed in the first place.

The Issues Paper has no clear theme and instead journeys across eight diverse topics culminating in 56 specific questions from Officials. Ultimately, the consultation process will be critical as the outcomes will directly shape future GST policy and legislation. For anyone with particularly strong GST views, making a submission now is far more likely to result in a change of approach than waiting until policy views become embedded and future legislation is presented to Parliament. The deadline for submissions on the Issues Paper is 29 June 2026.

So, what is covered in the Issues Paper?

Dwellings and commercial dwellings

A key issue with the GST Act’s current definitions of ‘dwelling’ and ‘commercial dwelling’ is that they do not adequately address the uncertainty that can arise in this area, particularly with boundary issues.

Some of the issues that arise in practice come from the fact that the definition of a ‘commercial dwelling’ simply contains a list of different types of property whereas the definition of ‘dwelling’ ultimately focuses on what the resident receives (while also referring to the definition of ‘quiet enjoyment’ which is defined in other legislation and not within the GST Act). There are some forms of accommodation which straddle the two concepts, so the Issues Paper looks to help categorise them into one or the other.

Student accommodation has been identified as an area where Officials consider the GST treatment is unclear, particularly for self-contained and self-catered student accommodation; the preference is to treat this as taxable (with the lower 9% GST rate being available). Farm stays (being a distinctly separate form of accommodation to farmhouses) is also called out in the Issues Paper. Specific comment has also been requested in relation to Māori housing arrangements which may help to inform whether there are other accommodation circumstances that should be considered.

Our expectation is that any changes in this space will not be intended to impact farmhouses or the rest home/aged care sector. However, given that the Issues Paper is silent on these matters, submitters may wish to specifically call this out in order to get greater clarity here.

Ultimately, the ideas presented in the Issues Paper seem to be sensible overall.

Electricity exported to grid by residential premises

This part of the Issues Paper is a clear example of where Officials have good intentions to try and make this area of GST more straight forward but the practical challenges can be tough.

To address some of the issues faced by electricity retailers in determining whether or not there is an entitlement for the electricity retailer to claim GST on solar-generated electricity exported to the grid by a residential customer. The Issues Paper proposes that if a residential property owner is registered for GST for any other reason, the sale of any surplus solar-generated electricity will be treated as subject to GST (although zero-rated), even if there is no correlation whatsoever between the taxable activity of the GST-registered owner and the generation of solar electricity at that property.

This proposal seems sensible from the perspective of the electricity retailer (resulting in no actual GST to claim back when purchasing surplus solar-generated electricity from customers) and reduces the risk of the electricity retailer claiming GST on purchases when the residential customer has not returned a corresponding amount of output tax through their own GST return. However, treating all sales of such surplus electricity as zero-rated will likely give rise to a myriad of other issues around the extension of the property owner’s taxable activity. This could also create issues with any future property sale if the residential property (being the property upon which solar panels are installed) forms part the taxable activity.

This is an area where consultation will be critical to ensure that Officials consider the impacts of the proposed changes, as well as alternative options the solve the perceived problem. One such alternative could be to simply deem the supply of surplus residential solar electricity to not be a taxable supply for GST purposes.

Cross-border issues

Officials have identified a number of issues arising from uncertainty around the definition of ‘resident’ for GST purposes.

For the purposes of the GST Act, a taxpayer is ‘non-resident’ to the extent they are not resident. A ‘resident’ generally follows the Income Tax Act 2007 definition but also captures anyone that has a “fixed or permanent place in New Zealand” related to any activity which takes place in New Zealand. Historically, there has been limited guidance as to how to interpret this from a GST perspective.

It is noted in the Issues Paper that the uncertainty around how these definitions should apply in practice is causing non-residents to have to register for GST in New Zealand simply because they happen to make supplies while physically present in New Zealand and operating at a clients' premises, even though their customers may be New Zealand GST-registered parties.

The Issues Paper suggests that the definition of resident could be narrowed so that there is only a “fixed or permanent place” where the supplier owns, leases, or rents the premises (while also excluding premises which are leased primarily for accommodation). Alternatively, the issues paper suggests a new exclusion where there is a fixed or permanent place in New Zealand solely because an employee is working at a client’s premises in New Zealand.

While the proposals outlined may be seen to be sensible, changing the legislation could give rise to unintended consequences. It may make more sense for Officials to dedicate their time and resource to instead provide clearer guidelines as to how the current definitions should be interpreted from a GST perspective. There is existing guidance in Interpretation Statement 21/07 which indicates that Officials are interpreting the resident definition narrower than then did in 2021.

Correcting errors and inaccuracies

The Issues Paper outlines a number of proposals to tweak how taxpayers correct GST errors. For the most part, these tweaks are focussed on self-correction rather than fundamental changes to the rules. There is however a new proposed legislative distinction between ‘single-person errors’ (generally being an error arising in the preparation of the taxpayer’s GST return) and ‘multi-person adjustments’ (being issues that arise in relation to the GST treatment of a supply between parties).

The proposed changes include:

• Increasing the existing self-correction threshold;
• Guidance as to how to correct multi-person adjustments;
• Placing prohibitions on asking the Commissioner to amend an original assessment to obtain use of money interest where an error is able to be corrected prospectively;
• Restrictions on current period adjustments for supplies that were never included in any GST return; and
• Limitations on the ability to claim input tax where a clear mistake or simple oversight has taken place.
  

While the suggestions around the self-correction threshold are sensible, the majority of the other ideas traversed in this part of the Issues Paper appear to be a step backwards in terms of allowing taxpayers to deal with issues pragmatically, particularly when all parties are GST-registered and errors do not lead to any net GST revenue loss. Expect to see a lot of submissions to this part of the Issues Paper, as it impacts all taxpayers whereas the other chapters are more limited in application.

Miscellaneous Issues

No Issues Paper would be complete without a section dedicated to ‘Miscellaneous’. Some of the items in this section are ones that most taxpayers are probably not aware were issues in the first place. Suggestions in this section include correcting how pre-registration expenditure is dealt with, changes to GST group registrations, tweaks to time of supply rules when consideration is unknown and updating the definition of ‘Participatory Security’ to include an interest in any unincorporated body.

Modernising the Goods and Services Tax Act

This section of the Issues Paper acknowledges the ever-increasing calls to rewrite and modernise the 40-year-old GST Act. While it is pleasing to see Officials acknowledge this, they do not currently recommend undertaking a full rewrite of the GST Act.

Officials appear to be of the view that meaningful improvements can be achieved with restructuring, renumbering, more modern drafting and adding readers’ aids. While that may be the intention, once a renovation is started it may be determined that a full rebuild may be more efficient.

In a world of limited resources, a question arises as to whether time is spent making existing laws more comprehensible (leading to better compliance) or designing more rules to bolt onto the existing model. We know a lot of people would prefer to see a mid-life makeover

International developments: Business event services supplied to non-resident businesses

There have long been calls to zero-rate conference attendance fees charged to non-residents as part of the way of boosting inbound conference spend in New Zealand. This happens in other jurisdictions, so New Zealand appears to be a more expensive location.

Proposals were being considered prior to the COVID-19 pandemic but unsurprisingly were shelved when global travel was all but eliminated conferences during the peak of the pandemic.

It is pleasing to see this being talked about again. However, at this stage Officials simply want to understand whether there is real demand for this here.

Other international developments

The final chapter of this 40th Birthday Issues Paper deals with e-invoicing and digital continuous transaction reporting. Officials note that while the Government and many sectors of business are encouraging the use of e-invoicing, there is currently no tax need for this to be mandated. Officials are also cautious about the cost that moving to digital continuous transaction reporting would impose on taxpayers.

Ultimately, the Issues Paper is interesting reading and does provide a lot of opportunities to share views and suggest alternate approaches to addressing identified issues as part of the consultation process. We are hopeful that the positive aspects of the Issues Paper help shape the future of GST in New Zealand as it moves into its fifth decade. If you would like to discuss the GST proposals further, please contact your usual Deloitte adviser.