Publications
New decision from IRD on GST time of supply
In our May 2005 newsletter we noted that Inland Revenue (IRD) had released an Exposure Draft inviting comment on its proposal to change its 17-year position on what constitutes an invoice, for GST purposes.
That Draft has now been published as an Interpretation Statement. While technically not binding on IRD, Interpretation Statements represent IRD’s considered view on matters and, in practice, they are regarded as binding.
Publication of the Interpretation Statement therefore signals a change in IRD’s view on what constitutes an invoice for GST. This change, while generally taxpayer-friendly, is of particular importance to taxpayers entering into agreements for the sale and purchase of land.
The standard GST trigger points are the issue of an invoice by the supplier or the recipient, or any payment being received by a supplier.
IRD’s previous position was that when an unconditional agreement was entered into, it was a “document notifying an obligation to make payment” and therefore an invoice, issued at that time. While widely understood, the effect of this position was that taxpayers' advisors often had to undertake a detailed consideration of agreements (in order to ascertain whether the agreements were in fact unconditional) to determine the time at which the taxpayer’s GST liability arose.
The Interpretation Statement reverses IRD’s previous view. The new approach is that an unconditional contract does not “notify” the parties of an obligation to make payment – rather, it creates and evidences the parties’ obligations.
Suppliers will be able to establish the time of supply more easily, as they will have to have either received a payment or taken the positive action of issuing an invoice before their GST liability is triggered.
Commonly, when contracts go unconditional, deposits are released to the vendor and this will still trigger a time of supply. Where agreements require payment of a deposit it may be possible to defer triggering a time of supply by paying them to a stakeholder. However, in such a case we recommend that clients take advice on the point.
For further information, please contact your usual Bell Gully advisor or:
AUCKLAND
Willy Sussman
Partner
Graeme Olding
Senior Associate
Jo Giboney
Solicitor
Campbell Pentney
Solicitor
Disclaimer
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
