Press Release - GST

28 September 2010

GST increases … only the beginning

Grant Thornton Tax Partner, Colin De Freyne, looks beyond 1 October to the wider implications of the increase in GST to 15%.

Is there a business owner who doesn’t know that GST will increase from 12.5% to 15.0% on 1 October this year? Almost certainly not. However, their understanding of what it will take to meet their GST obligations during the transition period needs a lift.

Many owners don’t realise that once the transition issues have been dealt with, a further raft of GST changes are likely to be introduced from 1 April 2011.

The recently issued Taxation (GST and Remedial Matters) Bill, proposes changes that are more radical than the rate increase to 15%. Its main proposals are:

·  Changing the rules for land transactions to prevent the loss of GST revenue from “Phoenix” transitions (that is, transitions that see an insolvent supplier failing to pay output tax while the purchaser makes an input claim). The original proposal of the “Domestic Reverse Change” (the purchaser charging itself the GST) has been replaced by a more manageable proposal to “zero rate” land transactions between GST registered parties.

·  Significant amendments will be made to “change of use” adjustments to allow businesses to make apportionment calculations on assets at the time of purchase rather than over the life of the asset. This will be similar to the UK and Australian rules and will simplify our rules for businesses which have a mixture of taxable and exempt supplies.

·  Revisions are proposed to the definitions of “dwelling” and “commercial dwelling” to more specifically define the boundary between the two. It will have repercussions for all accommodation providers especially as the proposed rules will not provide certainty for  all of the different categories of accommodation being provided in the market, for example student accommodation.

So the GST changes race will not be over by 1 October 2010. In fact, this will be a marathon that will last at least another nine months. Now’s the time for businesses to dust off their running shoes.

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