A Government announcement yesterday has been condemned as an unfair tax grab, a compliance nightmare and no way to make tax law.

Revenue Minister Todd McClay announced his intention to clarify through legislation that bodies corporate will not after all be required to register for goods and services tax.

That has been Inland Revenue's traditional position.

In revenue terms there would normally be little point in registration. Virtually all the costs bodies corporate incur and levy their members to cover would include GST, generating an input tax deduction to offset the GST on levies. Why impose the compliance cost?


But the situation changes with leaky buildings.

Where a body corporate receives a compensation payment and uses it to finance remedial work (the hefty bills for which include GST), if it is registered it is able to claim back the GST. Robin Oliver of tax consultants OliverShaw, a former deputy commissioner of Inland Revenue in charge of tax policy, said that was the right outcome.

The Government has already received GST when the original faulty work was done. If the repair work was done by the original builders it would not get a second bite of the cherry, whereas under the IRD's traditional position, which the Government now intends to legalise, it does. That is double taxation and confiscation, Oliver said.

But McClay said: "Other types of residential property owners such as owners of stand-alone homes cannot register for GST or receive GST refunds for maintenance or building repairs. Making the tax treatment of bodies corporate similar to other types of residential property owners is therefore fairer." He said there are about 1300 bodies corporate, with around 72,000 individual owners, the vast majority of whom will not have registered for GST and would not want to.

However, a review of the law undertaken by the IRD's chief tax counsel and released more than a year ago arrived at the "preliminary but considered" position that bodies corporate are legally separate entities from their owners. Their levies represent consideration for services they supply and supplying them satisfies the tests of a taxable activity.

The Government now proposes to legislate in the next available tax bill to change the law so that bodies corporate are no longer able to register for GST and receive GST input tax credits for the GST they pay on goods and services they purchase.

This would take effect from yesterday.

The discussion document released yesterday says a "savings" provision will be provided for bodies corporate currently registered for GST which will mean that they apply the new rules from yesterday and the existing law for earlier periods.


NsaTax director Graeme Carruthers said he has a body corporate client which is going to be spending $17 million on leaky building repairs. In effect its repair bill had just increased by $2 million.

Oliver said many office buildings have a unit titles structure and have long been registered for GST. The proposed legislation has a look-through rule for unitholders who are registered for GST.

"This proposal will materially increase compliance costs in that the GST portion is claimed by the unitholder and not that body corporate. This will mean monthly reporting of detailed financial information (ie each payment which has a GST content) to every unitholder," Oliver said.

And in the meantime what law should those bodies corporate apply, the existing one or what the minister has announced will apply from yesterday whenever the legislation get changed? And what if there is a change of Government in the meantime?

GST consultant Alastair McKenzie objects to what he sees as the biased and tendentious consultation document the IRD released yesterday.

It fails to address or even acknowledge submissions the IRD has received which concurred with its chief tax counsel's view of the law, McKenzie said.


McClay rejects the claim this is legislation by press release.

"We have already had one round of consultation. Now that the decision has been made, the way it will be implemented will be put out for consultation, exactly to allow taxpayers through the select committee process to make their case to Parliament," he said.

"The sector has wanted some clarity. Just as there will be some who are disappointed with the position, there will be tens of thousands of others who own residential property in apartment blocks who will be happy with this decision and I think homeowners through the country will see that those who live in apartments are being treated the same as those in houses."