On the horizon

GOODS AND SERVICES TAX

On the horizon

While Covid-19 may have delayed reform in some areas, further changes are anticipated.

GST Act rewrite

Unlike the income tax legislation, the GST legislation has not had any substantial 'rewrite' and has become cumbersome and difficult to follow. In particular, the rules dealing with ‘adjustments’ for partial taxable use or changes in use are difficult to navigate and sometimes impractical to administer. A full rewrite of the GST Act has been recommended by stakeholders and this may remedy some of these issues. If such a rewrite takes place, there may also be room for broader discussion around other outcomes that could be achieved through indirect tax.

Build-to-Rent / Rent-to-Own reform

As various measures are deployed to assist with home ownership and improving property supply, one potential lever is taxation. Some incentives for the building industry have been introduced to the income tax regime, but so far there is little to offer through the GST regime.

Potential areas for reform might include specific incentives for the ‘build-to-rent’ and ‘rent-to-own’ sectors. In ‘build-to-rent’ projects involving residential property, a key disadvantage is the inability to recover GST on expenses which are incurred in the development process – this is because residential rent is exempt from GST so related expenses do not give rise to GST credits. ‘Rent-to-own’ can involve some complications in terms of timing and when GST liabilities are incurred as ‘rent’ is paid towards an effective house deposit. These are issues which could potentially be addressed through tax legislation to help turn on new sources of housing supply.

The IRD has noted the issues for 'build-torent' in its discussion paper on proposed changes to the GST adjustment provisions, but no changes are proposed (although submissions were invited on this topic).