Inland Revenue Issues Public Rulings on GST Treatment of Director and Board Member Fee
Recently Inland Revenue released three public rulings outlining the GST requirements for directors and board members that will apply indefinitely from 1 April 2023. They also outlined when claims for input tax deductions can be made by the company engaging a director, or the organisation engaging a board member. The following is a high level summary of these rulings.
Typically, acting as a director or board member is not treated as taxable activity. In this situation, a person is only providing directorship services (i.e. professional services). However, in certain circumstances, a director or board member can be deemed to provide their services as part of a taxable activity. An example of this is a GST-registered sole trader who accepts a directorship or board membership while carrying on their taxable activity.
If the director or board member has accepted the office in their personal capacity, they do not need to return GST on their fees whether or not they are GST registered (or liable to be so). When a director or board member accepts the office in their personal capacity and they are GST registered (or liable to be), and the office is accepted as part of their taxable activity, then GST must be returned on the fees charged for their services. If the company that is employing the director is carrying on a taxable activity and is registered for GST, it may claim input tax for GST charged on the supply of the director’s services, provided the other legislative requirements are satisfied.
In situations where the director or board member accepted the office as an employee of a third party, or as a partner in a partnership, they do not need to return GST on their fees. Rather, the employer or the partnership is deemed to make the supply of services. If the employer or partnership is registered or liable to be registered for GST, they are required to account for GST on the supply of the director or board members services.
If a board member is appointed by the Governor-General or the Governor-General in Council, the services that board member provide will always be excluded from the definition of “taxable activity”.
Some professional directors will have taken a contrary approach. Inland Revenue have released an Operational Statement setting out how those taxpayers should proceed. The Commissioner will not require these taxpayers to retrospectively de-register for GST. However, those professional directors who are not carrying on a taxable activity must de-register with effect from 30 June 2023, or such other date as may be determined by the Commissioner. On de-registration a taxpayer may be required to return GST on the market value of any goods and services that they retain that had formed part of their taxable activity
The above is intended for informational purposes only and should not replace specific tax advice. For personalised advice on all tax issues, please contact Julia Johnston at Saunders & Co