GST Considerations due to COVID-19

As businesses are affected by COVID-19, those who are GST-registered should consider how the GST rules will apply to their circumstances. Unforeseen tax implications can arise when supplies are cancelled or the use of assets change, and some tax payer’s may need to cancel their GST registration.

GST on cancelled supplies

  • When a supply is cancelled, there is an entitlement to an adjustment for the GST that has already been returned. This adjustment is for the period when it becomes clear that the output tax returned was incorrect. A credit note for the supply cancellation is needed if a tax invoice was issued for the original supply.
  • If there has been an insurance claim for loss-of-income (or similar) the payout will be subject to GST.

GST adjustments for change in asset use

  • When an asset is not being used at all for a period of time, it is unlikely that there will be any GST action required, such as change of use or apportionment.
  • If an asset is usually used for both private and business purposes (e.g. a vehicle), but could not be used for business purposes due to COVID-19, this may mean that calculations for ‘actual use’ will show the asset as above the threshold for adjustment. Inland Revenue will apply a practical approach to accepting calculations so that the result is fair and reasonable in the COVID-19 circumstances.

GST registration cancellations

  • Businesses may need to de-register from GST if their business shuts down due to COVID-19.
  • If their taxable activity has ceased, then the registered person de-register within 21 days.
  • Whether the taxable activity has ceased depends on the facts. However, it should be noted that work completed in relation to ending the taxable activity are still part of a taxable activity.
  • When the taxable activity has stopped and a person de-registers, adjustments to return GST on assets retained from the taxable activity will be required.
  • It is important to note that you cannot de-register from GST if you have an intention to sell property.

If any of the above has raised concerns for you, or you require personalized tax advice, contact Julia Johnston.