Articles by Matthew Gilligan

Tax Changes From 1st April 2011

Wednesday, March 02, 2011

In recent times most have been consumed with the LAQC / LTC changes which are now fast approaching enactment on 1 April 2011.  As a result of this focus it is easy to miss some other significant law changes that have either been enacted or are currently before Parliament.  Changes are on their way for gift duty, GST and eligibility for family assistance.  By way of a broad overview the following is a summation of some of the key changes: 


  • Draft legislation is before Parliament to repeal gift duty from 1 October 2011.  Once this rule is finalised we will spend more time advising you as to what the appropriate course of action is.  At this point it would seem highly likely that this will be enacted as is so one can expect gift duty to be no more from 1 October 2011. 
  • A number of significant changes are programmed to take effect in relation to GST from 1 April 2011.  Some of the key ones are: 
  • Land transactions entered into after 1 April 2011 are zero rated for GST purposes if the transaction is between two GST registered parties.  In the past the vendor would collect GST from the purchaser and remit that to the IRD and in turn the purchaser would claim the GST back.  From 1 April 2011 such transactions will be subject to a GST rate of 0% meaning no GST is charged and collected and no GST is claimed by the purchaser.  This is a rule change designed to prevent so-called "phoenix" arrangements whereby land was sold out of one GST registered entity to another, at which time the purchaser made a GST claim and the IRD were left out of pocket because the vendor entity was insolvent and could not pay the GST back. 
  • New apportionment rules replace the current adjustment rules.  Under current GST rules you claim GST on 100% of the purchase price of an asset if the principal purpose in acquiring the asset is to apply it towards a taxable activity.  You then make adjustments if the asset is subsequently applied towards exempt purposes.  The apportionment rules replace this approach by requiring you to determine up front what portion of the assets use is intended to be for taxable purposes and then claiming GST on that basis.  For example, say 75% of the use of an asset is expected to be in relation to the taxable activity, you will claim 75% of the GST.  You then make adjustments over time if the actual use of the asset differs from the original estimate. 
  • In relation to land transactions many of you may already be making GST adjustments as a result of a property being bought for dealing or development purposes being rented.  Despite the enactment of these new rules on 1 April 2011 you will still continue to apply your existing rules for land acquired prior to this date. 
  • The position in relation to nominee transactions has been clarified.  There has historically been debate around whether nomination arrangements triggered a second supply for GST purposes.  The new provisions by and large confirm that there is a single supply from the vendor to the nominee and provided all other criteria met, the nominee is entitled to make the GST claim. 
  • The definition of commercial property has been broadened to explicitly include home stays, farm stays, bed and breakfast accommodation and certain serviced apartments.  Broadly speaking there is almost a presumption that property is commercial unless you fit within the definition of dwelling, which is essentially a dwelling used by its occupants as their principal place of residence. 
  • In relation to Family Assistance the definition of income in order to determine one’s eligibility is being broadened to include trustee and company income.  This applies to Trust's where the applicants are settlors and companies owned by these Trusts.  Various other items of otherwise exempt taxable income are also now included in the assessment.  This was a change signalled when the budget was read in May.  It represents an attempt to address the Government’s concerns about the integrity of the social assistance regime.  

Naturally the above is merely a broad brush summary of the changes.  If you have concerns particularly in relation to GST and eligibility for Family Assistance then please contact us.