What are the GST Apportionment and Adjustment Rules?

Introduction to GST apportionment

The New Zealand government has introduced new GST apportionment and adjustment rules to help businesses manage their tax more efficiently. These changes aim to reduce compliance costs and better reflect the way businesses operate today.

Key Changes to GST apportionment

1. Principal Purpose Method:

   o    For goods and services costing $10,000 or less (excluding GST), businesses can now claim a full GST input tax deduction if the primary purpose of the purchase is to make taxable supplies.
   o    No further adjustments are required for these low-cost items, simplifying the process for small purchases.

2. Reduced Adjustment Periods:

   o The period for monitoring and adjusting GST claims has been reduced. For land, it is now ten years, and for goods and services costing between $10,000 and $20,000, it is two years.

3. Private and Exempt Use

o Businesses can choose to treat certain assets, such as dwellings, as purely private or exempt. This means no GST input tax is claimed when buying these goods, and no GST is charged when selling them.

Background 

Previously, businesses had to estimate the percentage of taxable use for assets used both for business and private purposes. This often resulted in complex calculations and high compliance costs. The new rules aim to simplify this process and make it more predictable.

Detailed Explanation

1. Principal Purpose Method:

   This allows businesses to claim a full GST deduction for low-cost items if they are mainly used for business purposes. This change is designed to reduce the paperwork and effort involved in claiming GST on smaller purchases.

2. No Subsequent Adjustments:

   For items costing $10,000 or less, once the initial GST deduction is claimed, no further adjustments are needed. This makes it easier for businesses to manage their GST returns.

3. Reduced Monitoring Periods:

   Businesses now need to monitor the use of assets for a shorter period. This reduces the long-term administrative burden and helps businesses focus on their core activities.

4. Private and Exempt Use:

By allowing certain assets to be treated as purely private or exempt, businesses can avoid the complexities of partial GST claims. This is particularly useful for assets like homes that may have occasional business use.

Example

Phil's Laptop:

Phil, a GST-registered contractor, buys a laptop for $3,000 (plus $450 GST). The laptop is primarily for his business, but he may use it privately occasionally. Under the new rules, because the laptop costs less than $10,000 and is mainly for business, Phil can claim the full $450 GST deduction in his next return.

Conclusion

The new GST apportionment and adjustment rules are a welcome change for businesses in New Zealand. They simplify the tax process, reduce compliance costs, and make it easier for businesses to manage their finances. By aligning the rules with modern business practices, the government aims to create a more efficient and fair tax system.