New tax bill closes GST “phoenix” fraud schemes

A bill tabled in Parliament today will prevent so-called "phoenix" fraud schemes that undermined the integrity of the GST rules, said Revenue Minister Peter Dunne.

These schemes involve Inland Revenue refunding GST to a registered purchaser when there is no corresponding GST payment made by the supplier of the transaction because they have been deliberately wound up to avoid paying the GST.

"This practice has been of particular concern in the property sector, where GST is substantial," Dunne said.

To prevent this practice, the bill will require GST-registered vendors to charge GST at a zero rate on most transactions involving land or in which land is a component if the purchaser is also GST-registered.

The Government, following a 2009 consultation paper, had signalled its intention to close the loophole in Budget 2010 as part of tax reforms to promote fairness and integrity across the tax system, Dunne added.

Other measures in the bill would make it easier for taxpayers to understand their GST obligations and reduce compliance costs.

"These measures will clarify parts of the GST rules where taxpayers have experienced difficulties in accounting for GST or interpreting the legislation," Dunne said.

For example, the current change-in-use rules that apply when assets are used for both taxable and non-taxable purposes will be replaced with an approach that apportions the input tax deductions according to the actual use of goods and services.

The GST boundary between residential accommodation, which is GST-exempt, and commercial accommodation which is not, will also be clarified.

Similarly, the GST rules around transactions involving nominees, where a purchaser has nominated another person to receive the goods and settle the transaction, will be clarified.

Dunne said to complete the GST reform package, the bill deals with an unintended timing problem for non-profit bodies accounting for GST when they supply a large asset, such as a house, for a person in need.

"This is an important change so the GST rules do not act as an undue impediment to the decisions non-profits must make in the course of their work for others," he said.

The remaining features of the bill are of a remedial nature and further clarify earlier legislation.

They include allowing portfolio entities a deduction for credit impairments, clarifying the tax treatment of superannuation funds under the National Provident Fund and clarifying the way emissions units allocated by the Government under the Emissions Trading Scheme should be recognised for income tax purposes.

Comments from our readers

No comments yet

Add your comment:

Your name:
Your email:	Not displayed to the public
Comment:
Comments to NetProphet go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Anti-spam verification:

Type the text you see in the image into the field below. You are asked to do this in order to verify that this enquiry is not being performed by an automated process.

Email Updates Sign up now

RSS Feeds View the list

Twitter Read our tweets