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Can I register for GST when I provide director services through a company?

By Robyn Walker & Amy Sexton

Earlier this year the Inland Revenue issued three public rulings and an operational position on the GST treatment of fees paid to directors and board members (referred to collectively as directors).

It’s worth noting at the outset that the Goods and Services Tax Act 1985 (“GST Act”) has some very prescriptive rules around when any engagement as a director can form part of a “taxable activity” (a taxable activity is required before being able to register for GST).

One of the Commissioner’s conclusions in the Commentary to those rulings was that a professional director (a person holding multiple directorships) without any other associated taxable activity (such as a legal, accounting or consulting practice) does not carry on a taxable activity just by virtue of holding multiple offices. While the rulings released in February 2023 summarised the legislation, what was not crystal clear in these publications was the GST treatment for professional fees for directors who provide their services through a personal services company (PSC). This caused some concern for a number of directors due to Inland Revenue's operational position which required directors who were incorrectly GST registered to deregister by 30 June 2023. Having an action and deadline got people’s attention.

In response, the Inland Revenue has now helpfully issued a draft Questions We’ve Been Asked (QWBA) “GST: Directors and board members providing their services through a personal services company” to clarify matters.

The QWBA focuses on the following:

If a director provides their services through a personal services company (PSC), will the PSC be able to register for GST when the director would not be able to register if they were providing their services in their capacity as a natural person?

In analysing this question Inland Revenue defines a PSC as follows: “means a company that has been set up by a person to provide services to clients. The person is often the only employee, shareholder, and directors of the company.”

There are two factual variations to consider, depending on whether the contractual agreements are between a company that requires a director and the PSC, or if they are between the company that requires the director and the individual who is appointed the director.

1. PSC contracts to provide director’s services

The Inland Revenue has now taken the position that if a PSC contracts with the company that requires a director and supplies the service under that contract, those supplies of directorship services fall within the definition of “taxable activity”, as the supply of the services is distinct from the supply of personally being a director. If the PSC’s level of activity is sufficient to meet the definition of taxable activity in section 6 of the GST Act, the PSC can register for GST. The QWBA also provides the following example to help explain:

Rupert Barre is an independent director of Nutwood Forest Limited (NFL), a position that was entered into via his PSC, Rupert Barre Limited (RBL). Rupert Barre is a well-respected public figure and proves to be an excellent director and subsequently RBL receives numerous requests for Rupert to join the board of other companies. RBL enters into contracts with several other companies to provide Rupert Barre as a director. NFL and the other companies agree to pay RBL for the provision of directorship services upon the issue of an invoice by RBL.

Rupert now sits on the board of several companies and those companies have board meetings at least every two months. RBL has been regularly entering into contracts with companies, invoicing for Rupert’s services, dealing with enquiries from other companies interested in appointing Rupert as a director, paying Rupert a monthly salary, and also dealing with all tax and other regulatory matters. RBL’s activity would be sufficient to amount to a taxable activity and hence RBL may register for GST (and if RBL’s level of supplies is over $60,000 per annum it must register for GST). Section 6(3)(b) does not exclude RBL’s activity from being a taxable activity; it only applies to exclude the activity of Rupert Barre himself from the definition of “taxable activity”.

2. Director contracts to provide their services to companies but is obliged to account for their fees to their PSC.

The answer is less clear when a director contracts their services directly to a company but is obliged to account for these fees to their PSC, as the PSC is their employer. This is due to some technicalities of the GST legislation, however on balance Inland Revenue concludes that provided the activities otherwise meet the definition of a taxable activity (i.e., it is an activity which is carried on continuously or regularly and involves the supply of goods and services) the Commissioner will be satisfied that the PSC can be registered for GST.If you are a director or board member and have any questions about GST, please contact your usual Deloitte advisor.

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