IRD questions exactly what constitutes a GST invoice

Willy Sussman, Partner | Wednesday 18 May 2005

Inland Revenue (IRD) has indicated that it is changing its 17-year position on what constitutes an invoice for GST purposes.

This change applies to all invoices, but perhaps arises most frequently in relation to agreements for the sale and purchase of land.

Taxpayers in the midst of documenting transactions will need to consider the possible ramifications carefully.

As IRD has only issued an exposure draft, we will not discuss the technical merits of the argument here and limit this note to alerting clients of the potential change and some of its consequences.

The 'standard' GST trigger points are the issue of an invoice by the supplier or the recipient, or any payment being received by the supplier.

IRD's previous position was that the execution of an unconditional agreement was sufficient to trigger a GST liability, on the basis that an unconditional agreement was a "document notifying an obligation to make payment" and therefore an invoice, as defined in the GST Act.

While the time of supply triggers a GST liability for the supplier, the recipient needs to be in possession of a "tax invoice" (at the time it files its return claiming the credit) to claim a GST credit. A tax invoice must contain a whole list of further particulars listed in the GST Act.

IRD's exposure draft reverses its previous interpretation and invites taxpayer comment before 30 June 2005. As a draft item, it says that it represents IRD's preliminary, though considered, views, but cannot be relied on.

If this was to become IRD's final view then executing an unconditional agreement would not trigger a time of supply (for either vendor or purchaser). However, typically, deposits have been paid and if so the receipt of the deposit would trigger a time of supply. It may be possible to defer this by having the deposit held by a stakeholder, only to be released at a later date.

The exposure draft contemplates changes to a fundamental point that is generally well understood and has been in place for 17 years.

Questions of GST timing are often critical to the way transactions are structured. While on its face, the contemplated policy change may appear taxpayer-friendly, it may well cause added confusion.

We will update you on any further developments as they occur.


For more information, please contact any member of our tax team listed below.

Auckland

Niels Campbell
Partner

David Simcock
Partner

Willy Sussman
Partner

John Bassett
Senior Associate

Graeme Olding
Senior Associate

Monique Mackie
Senior Solicitor