New Zealand has set out proposals for a comprehensive reform of elements of the country's goods and services tax regime. Most notably, it has announced broad changes, which would apply retroactively, to the treatment of crypto-assets, including virtual currencies.
The Inland Revenue Department (IRD) has launched a consultation on:
- Improving and simplifying tax invoice requirements;
- Excluding crypto-assets from GST and certain financial arrangement rules;
- Reforms to the GST apportionment and adjustment rules; and
- Simplifying how GST can apply to certain financial services in the managed funds industry.
The proposals in the area of crypto-assets are significant. The Government is now proposing that crypto-assets should broadly not face GST, but positive GST rates and specific rules could be introduced where appropriate.
The consultation document states:
"It is intended that crypto-assets should have a similar tax treatment to other investment products or asset classes which are close substitutes for the crypto-asset. It is not intended that crypto-assets would receive a concessionary tax treatment."
The Government is considering a number of options. For instance, it is considering whether all crypto-assets should be exempt from GST (as is the case for money), or whether there should be a zero rate for supplies to non-residents (which would align the rules for crypto-assets with those for financial services).
The consultation document notes that introducing a zero rate of GST for supplies for non-residents may have a negative impact on how attractive New Zealand is as a domicile for exchanges, and a zero rate would mean that New Zealand investors who trade more than NZD60,000 (USD29,500) of crypto-assets in a 12-month period on international exchanges would typically be required to register for GST (assuming most of their trades were with non-resident persons).
Additionally, the Government is considering whether crypto-assets deemed to be shares should be treated not as financial arrangements for income tax purposes (and so would generally be taxed on a realised basis) and exempt financial services for GST purposes.
The proposed GST changes would only apply to supplies of crypto-assets. Other services related to crypto-assets that are not in themselves supplies of crypto-assets, such as mining, providing crypto-asset exchange services, or providing advice, general business services, or computer services, would continue to be subject to the existing GST rules. Under the existing GST rules, these services could be either taxable supplies to New Zealand residents subject to 15% GST or zero-rated supplies to non-residents.
Supplies of goods and services that are normally subject to GST will continue to be subject to GST regardless of whether crypto-assets are used to purchase those items.
Importantly, the Government is proposing that the changes to exclude crypto-assets from GST would have retroactive effect to January 1, 2009.
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Modernising Tax Invoice Rules
On simplifying tax invoices, the consultation proposes to do away with the requirement to provide details of the quantity and volume of goods and services supplied, as this is normally detailed in commercial documents.
Other changes are intended to modernise the rules. For instance, the consultation proposes that, with invoices now being largely electronically generated, it would make sense to also remove the requirement that a "copied" invoice be marked as "copy only". The IRD said the requirement makes "little sense in the electronic environment."
Further, the IRD said the requirement in Section 20(2)(a) that the recipient seeking an input tax claim "hold" a tax invoice has been interpreted by some to suggest that, although hard copy invoices are not required, a hard copy (for example, in PDF format) must be able to be downloaded. The IRD is considering whether businesses should be required to keep such tax invoices or require only the retention of information required be kept on a tax invoice.
Other proposals would relax the rules surrounding buyer-created tax invoices and shared invoices, and revise the penalties for non-issuance of a tax invoice.
In light of COVID-19, the deadline for responses to this consultation has been extended to May 8, 2020.