Often people become GST registered which is an easy process. It takes less than 10 minutes to do and there is no real approval process. However, what people do not necessarily understand is that Inland Revenue can later review your situation and determine that you were not entitled to be GST registered. To be GST registered you must be undertaking a “taxable activity”.
Inland Revenue have recently issued a notice to tax advisors stating that clients filing regular GST refund returns, with expenses consistently more than their income, may suggest that they are not carrying out a taxable activity or have errors in their GST returns. This provides a strong indication that this is a focus area for Inland Revenue, and they will start reviewing and/or auditing these taxpayers in the near future.
The notice advised that taxpayers who registered for GST 12-24 months ago and have received regular refunds may receive a letter. We expect the letter will be standard in form, but you should seek specialist tax advice to determine if there is a taxable activity or if a voluntary disclosure should be provided. You can read more about voluntary disclosures here.
The notice also states that taxpayers may receive a letter from Inland Revenue if they have filed regular GST refund returns in the last 36 months. Again, this should be reviewed by a tax specialist as Inland Revenue require a response to this letter. The response needs to provide a description of the taxable activity or activities undertaken, and an explanation for the regular GST refunds. A voluntary disclosure may be required to correct any errors. If there is no taxable activity, then the GST registration should be cessed, with a final GST return filed.
Inland Revenue’s notice should heed as a warning for persons who have GST registered, perhaps lifestyle block owners who sell the odd bit of hay or provide grazing, or persons who used to have a taxable activity in the past but no longer do, but have not deregistered. It is important to note that if you have ceased a taxable activity you are required to advise Inland Revenue and cease registration within 21 working days. Upon cessation of your GST registration, you are required to return GST on the value of any assets that are retained. This includes all business assets retained. This is often the reason many people do not de-register for GST, in particular when GST has been claimed on land which generally increases in value. The amount of GST payable for the assets retained is calculated using the market value of the assets at the time of cessation. We have been seeing Inland Revenue review taxable activities for some time as we have previously stated in this article, however, the release of this information from Inland Revenue shows their renewed focus on the area. GST is far from straightforward, and caution should be taken by taxpayers and professionals alike.
This article is intended for informational purposes only and should not replace specific tax advice. For personalised advice on all tax issues please contact us.
This article was accurate at the time of publishing.
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