What is Product Ruling?
Product ruling is one of the four types of binding rulings the commissioner of Inland Revenue is able to issue. A binding ruling is IR’s interpretation of how a tax law applies to a particular arrangement. An arrangement is any agreement, contract, plan or understanding (whether enforceable or not), including any steps and transactions that carry it into effect, and any facts that the Commissioner considers material or relevant as background or context to a private or a product ruling (Ref: Section 3 of the Tax administration act).
A product ruling is an interpretation of how the tax law applies to consumers of a particular product. It is issued under section 91F of the tax administration act. For example, a bank offering a mortgage offset bank account could obtain a product ruling on the tax treatment of the offset arrangement, including the effect of the financial arrangement rules, the resident withholding tax (RWT) rules, and whether any taxable income arises as a result of the offset.
Examples of recent product rulings relating to GST treatment on infrastructure payments.
A GST registered Landowner owns a section with a Final Encumbrance attached. Infrastructure Payments are $300 per quarter and are due for payment on the same payment dates that apply for quarterly payments of Auckland Council general rates, being:
• 31 August, for the period 1 July - 30 September
• 30 November, for the period 1 October - 31 December
• 28 February, for the period 1 January - 31 March
• 31 May, for the period 1 April - 30 June
The Landowner sells the property for $500,000 plus GST, with settlement on 31 July. The Landowner has not paid the Infrastructure Payment for the period 1 July - 30 September.
On settlement, there will be an apportionment of the accrued but unpaid Infrastructure Payment on settlement date, calculated on a number of days basis:
31 days / 92 days in the quarter * $300 = $101.10
The 'outgoings' adjustment on settlement that the vendor will pay the purchaser for their apportioned share of the accrued but unpaid Infrastructure Payments will not be subject to GST.
(Ref: Tax Information bulletin, Vol 31 No 3 April 2019)
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