Tax experts welcome second thoughts on GST law covering bodies corporate

Robin Oliver backs the Government's GST law change. Photo / Mark Mitchell

Tax practitioners have welcomed legislation introduced this week to clarify the law on bodies corporate and GST.

In a reversal of the Government's position last year, registration for GST is to be optional, not forbidden.

It means that where a body corporate of a leaky building receives a compensation payment and uses it to finance remedial work - the hefty bills for which will include GST - it will be able to claim back the GST if it is registered.

Robin Oliver of tax consultants OliverShaw and a former deputy commissioner of Inland Revenue in charge of tax policy, has long argued that is the right outcome.

The Government had 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, that bodies corporate should not be registered for GST, it would, and that was double taxation.

"It has got to the right position in the end," Oliver said yesterday.

It is also consistent with the "preliminary but considered" view of Inland Revenue's lawyers that bodies corporate are legally separate entities from their owners.

Their levies are consideration for services they supply, and supplying them satisfies the tests of a taxable activity.

The Government's practical concern had been that requiring bodies corporate to be GST-registered would impose pointless compliance costs.

"The feedback we received confirmed that position and so this bill now gives the 13,800 bodies corporate, and the owners of 135,000 units, the choice," said Revenue Minister Todd McClay.

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.

The legislation just introduced cuts the Gordian knot by giving bodies corporate the option to register for GST but not requiring them to do so.

If a body corporate has previously registered for GST it can continue to pay and claim back GST, while those which have not can remain unregistered or register and undertake the accompanying tax obligations. PwC partner Eugen Trombitas said that pragmatic approach differed from the proposals in last year's issues paper, which called for a compulsory deregistration of most bodies corporate with retrospective effect.

"We welcome the proposed solution because it will give bodies corporate the choice of being in the GST net or not," he said.

KPMG partner Peter Scott said: "This is a considerable improvement over the Government's original proposal, which was to treat bodies corporate members' fees as GST exempt in all cases and deny GST claims on bodies corporate expenditure.

"That would have resulted in considerable compliance costs, including having to repay GST refunds and/or claim back GST already paid.

"We therefore welcome the change of approach."