Ahead of the Budget, Inland Revenue released the Officials’ Issues Paper “Current GST Issues”. Every few years, it releases a paper to discuss some of the practical issues highlighted by its team as the GST Act is applied by taxpayers and their tax advisors.

For legislation that has been around for more than 40 years, the GST Act has functioned very well, and it is a testament that most of these issues either relate to emerging business trends or issues around the margins.

Inland Revenue is accepting submissions on the paper, with a due date of 29 June 2026.

Transitional housing and student accommodation may be reclassified in GST changes

Ever since the GST Act was enacted in 1985, it was intended that dwellings, both owner-occupied and rented, would be exempt from GST, while accommodation services such as hotels and motels (referred to as “commercial dwellings”) would be subject to GST.

The key factors to differentiate between a dwelling and a commercial dwelling have been the concepts of “principal place of residence” and “quiet enjoyment”. As the real estate landscape has evolved, the definition has become increasingly difficult to apply, particularly quiet enjoyment. Inland Revenue has identified issues in the transitional housing and self-contained student accommodation space, where some of the unique features of those accommodation types have resulted in confusion about whether they were a dwelling, a commercial dwelling or neither.

It is being proposed that certain types of transitional housing would be specifically included as a category in the definition of dwelling in much the same way as an independent residential unit in a retirement village or rest home was included in the dwelling definition in 2014. Transitional housing in traditional commercial dwellings such as motels and boarding houses would still be treated as being a supply in a commercial dwelling.

It is proposed that all student accommodation subject to section 5B of the Residential Tenancies Act be included as a category in the definition of commercial dwelling. This is on the basis that relevant student accommodation is commercially operated at scale and typically includes services more consistent with a commercial dwelling (e.g. the provision of meals).

Inland Revenue is seeking further comment on the definition of dwelling and commercial dwelling more generally, in recognition that other issues may arise due to the quiet enjoyment requirement in the dwelling definition.

Cross-border transactions also under the GST microscope

Inland Revenue has identified two key matters with the GST rules as they apply to cross-border transactions.

The first issue relates to non-resident suppliers. Inland Revenue has become aware of instances where non-resident businesses need to be registered simply because they (or an employee) performs work at a GST-registered client’s premises in New Zealand, their only taxable supplies in New Zealand are zero-rated, or they have a level of taxable supplies in New Zealand below the GST registration threshold, but when combined with zero-rated supplies results in a breach of the GST registration threshold.

There are two potential solutions. The first is the narrowing of the definition of resident for GST purposes whereby having a fixed or permanent place would be limited to cases where the supplier owns, leases or rents the premises, with the latter excluding non-resident workers who are working from a house or apartment they lease. The other solution would be to introduce a new business-to-business exclusion.

The second issue applies more generally. Suppliers, including residents, may make more than $60,000 from zero-rated supplies, such as supplying exported services or selling emissions units, and are required to register for GST. This results in compliance costing more than any refund obtainable, as well as no tax revenue benefit to the government.

The potential solution is that when determining whether a taxpayer meets the $60,000 threshold for compulsory registration, zero-rated services would be excluded. This would act as an expansion of the recently enacted law change applicable to non-resident visitors. Voluntary registration would still be available.

Reforming correction rules for GST return errors and inaccuracies

The rules for correcting errors and inaccuracies in GST returns sit across both the GST Act and the Tax Administration Act, with several practical issues. For GST inputs, an unlimited timeframe for deducting input tax exists when the failure to deduct input tax at the appropriate time arose from a clear mistake or simple oversight. On the flipside, the small-value threshold for self-correction of errors in the Tax Administration Act includes a reference to output tax payable – which often means exporters are unable to utilise this mechanism as they have minimal output tax payable.

The other issue is that a GST correction sometimes only impacts on a single taxpayers' position (a single-person error), and other times it can impact on multiple taxpayer’s positions (a multi-person adjustment). An example of the former would be the failure to include a claim for an invoice in a GST return, while an example of the latter would be incorrectly treating a taxable supply as exempt.

For single-person errors, it is proposed that prospective amendments be limited to errors less than the small-value threshold for self-correction of errors in the Tax Administration Act, with a new “5% of supplies” test included, meaning exporters would be able to more easily utilise this mechanism.

The current ability to deduct input tax on an unlimited basis would be limited to situations where:

• The person could not obtain taxable supply information.
• There was a dispute over the proper payment amount for the taxable supply relating to the deduction.
• There was a mistaken understanding on the part of the person that the supply to which the deduction relates was not taxable.

In all other circumstances, a reassessment request would be required.

For multi-person adjustments, these would be available on a prospective basis only where all parties could correct the GST treatment within the applicable time bar. This would require the provision of supply correction information, a refund, or notification of the correction.

GST adjustment rules not having the intended effects in some instances

Under the status quo, the GST adjustment rules mean a GST claim can be made by a taxpayer where costs were incurred prior to GST registration, provided the goods and services were acquired for $10,000 (excluding GST) or more. Where the goods and services were acquired for $10,000 (excluding GST) or less, then no GST claim is available.

While this approach is largely coherent, some scenarios have been identified where it does not have the intended effect. An example used is a sole trader who purchases $9,200 of goods (including GST) on one day, and then a few weeks later purchases a further $9,200 of goods (including GST) and then registers for GST and uses those goods as part of their taxable activity. Under current rules, the sole trader cannot claim any of the GST back. On the other hand, if they had purchased the same goods in a single transaction, then they would have been able to claim the GST back.

Inland Revenue is considering one of three options:

• Retention of the status quo.
• Reversion of the law to its pre-2019 state (giving the option to make an adjustment for pre-registration goods or services below $10,000, excluding GST).
• Implementing a new “entry into the GST base” rule, which would effectively allow a claim on pre-registration goods or services but only to the lower of the original acquisition cost and the open market value of the goods or services at the time.

Updating the GST Act

Following the amendments to the GST Act in 2023, it became clear that its structure had become unwieldy; and calls for a modernisation or a full rewrite became louder. For example, someone verbally referring to “section twenty three a” of the GST Act could potentially be referring to section 20(3)(a), section 20(3A) or section 23A. To make matters worse, two of those sections relate to a similar subject matter.

Inland Revenue has accepted that something needs to be done, and while not in favour of a wholescale rewrite, it has been considering potential improvements, including:

• Restructuring and renumbering the GST Act to make better use of parts, subparts and schedules.
• Repealing obsolete or spent provisions.
• Relocating certain provisions to the Tax Administration Act.
• Adding “defined terms” lists at the end of each section and ensuring all definitions also appear in the main interpretation section.
• Adopting a modern drafting style.
• Better use of readers’ aids, diagrams, examples, signposts and cross-references.

It is not clear whether the result of Inland Revenue’s proposal would be a brand-new Goods and Services Tax Act, or an even-further amended Goods and Services Tax Act. We would hope it were the former to provide a clean break.

Inland Revenue’s position on e-invoicing and transaction level reporting

E-invoicing is becoming increasingly common and amendments to the GST Act in 2023 were designed in part to facilitate it. E-invoicing can also be used to aid tax administration, with invoice data able to be provided to tax authorities in real time or near real time as part of the invoicing process.

Given this, some countries such as Singapore and the United Kingdom are introducing requirements for certain GST/VAT-registered businesses to transit invoice data via e-invoicing to their relevant tax authorities. To date, Canada, Australia and New Zealand are instead encouraging a voluntary uptake.

Inland Revenue has emphasised that it isn’t considering making e-invoicing compulsory, but instead wants to receive comment on e-invoicing and whether it could aid in tax compliance.

Possible changes to filing frequency of GST returns

Some jurisdictions are testing whether requiring more frequent GST/VAT returns from high-risk taxpayers can improve compliance outcomes, and Inland Revenue is considering whether this should be implemented in New Zealand. This would result in changes to six-monthly filing, with one of two possibilities being considered:

• Limiting the availability of six-monthly filing to taxpayers who have demonstrated a history of good compliance with filing returns and paying GST on time.
• Requiring non-compliant taxpayers to file more frequently.

 Other items covered in the issues paper include:

•  Electricity exported to grid by residential premises
• Exit by representative member of a GST group
• Time of supply when consideration is unknown

Baker Tilly Staples Rodway’s perspective on the proposed changes to the GST Act

Tax legislation always needs some repairs and maintenance to ensure it operates well and achieves the objectives of Parliament, and we welcome the opportunity for taxpayers and tax advisors to have their say about pressing GST issues. From past experience, we have found Inland Revenue is open to comments and by no means are the proposals locked in.

Many of the proposals make logical sense and we support measures that help reduce compliance costs for small to medium enterprises, and minimise the chances for inadvertent errors arising.

We welcome the prospect of a clean-up of the GST Act. Four decades worth of amendments to the Act, including considerable changes in 1996, 2000, 2011 and 2024, has made it unwieldy and difficult to navigate. However, we agree most of the problems are around the structure of the Act and not the wording used, and so we agree a full rewrite is unnecessary and the GST Act should instead be restructured and renumbered. This process should make the Act far more user-friendly, while also ensuring that extensive policy resource is not used.

Baker Tilly Staples Rodway will be submitting on these proposals, and we would like to hear your thoughts on Inland Revenue’s suggestions. Please contact your Baker Tilly Staples Rodway advisor if you have any questions or would like to provide your opinion.