A discussion documents was released in May 2018 “GST on assets sold by nonprofit bodies” by Policy and Strategy, Inland Revenue, and the Treasury, discusses about GST rules.
What is the GST treatment for not for profit bodies and charities?
The GST treatment is more concessionary than the other taxpayers. It seems the tax laws are not specifically talking about not for profit bodies GST treatment. The area is grey it is left up to the taxpayers to take their position.
The donations are not specifically mentioned in the act; thus, they are neither exempt supplies or nor taxable supplies. The donated goods are exempt supplies, which is mentioned in the act.
The supply of donated goods and services by not profit bodies are exempt. For example, a shop selling donated goods is exempt supplies. It means no GST to be paid on sale, and no input tax deduction available for GST costs incurred in making sales.
However, input tax deductions can be claimed for GST incurred for any activity other than exempt activity. “The receipt and payment of donations is outside the scope of GST rather than specifically exempt”.
The GST treatment has been unclear since the introduction, so taxpayers may have different interpretation of this. Some may have assumed, that GST is payable on any supply for which input tax deductions have been claimed. This was because it may have been thought that, once an entity registers, all its activities (other than its expressly exempt activities) form part of the entity’s taxable activity.
Thus, the NPB can be advantaged for having taxable activity and providing other services. Expenses related to both can be claimed as input tax credits. Later, if the NPB sells some part of the assets (not related to taxable activity) the GST payback could be in a grey area. New rules will avoid such ambiguity, as the NPB will have to pay GST on the sale of assets whether it is related to taxable activity or not.
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