• Income tax – business activity, with submissions due on 5 September.
• GST – meaning of payment, with submissions due on 10 September.
• GST – secondhand goods input tax deduction, with submissions due on 10 September.

Below we briefly outline Inland Revenue’s preliminary views on these key issues.

Question: Are you in business?

Inland Revenue has released a 46-page comprehensive draft interpretation statement clarifying when a taxpayer is “carrying on a business” for income tax purposes. It’s crucial to understand the definitions because they determine to what extent income is taxable and whether deductions are available. 

The draft statement outlines key indicators of business activity, including: 

• Regularity
• Scale
• Financial investment
• Commercial organisation

It distinguishes businesses from hobbies, passive income activities and one-off ventures, noting even profit-making activities may not qualify as a business if they lack sufficient scale or structure.

Several common scenarios are commented on including:

• Holding companies
• Share investments
• Money lending
• Property leasing
• Whether a single transaction can give rise to a business
• Whether a person can carry on multiple businesses
• When a business commences
• Winding up a business
• Downscaling a business
• Temporary cessation

The draft statement addresses when a business commences or ceases, and the implications for deductions and GST. It also dedicates a few paragraphs to distinguishing the difference between a “business” for income tax purposes and a “taxable activity” for GST purposes, as there are instances where a “taxable activity” exists but not a “business”.

The presence of a business doesn’t always determine tax outcomes – some income may still be taxable, and some expenses deductible, even if no business is carried on (an example would be a one-off transaction involving the purchase of land with the intent of resale).

Comment on the statement is open until 5 September 2025. 

Question: What is a payment for GST purposes?

The meaning of “payment” seems obvious to the average person, yet nuances in the GST rules require careful consideration of whether something is a payment, especially where it does not involve cash or its electronic equivalent.

Knowing whether a payment has been made is important for the following reasons: 

• Time of supply. Knowing when a payment has been made is important to ensure correct GST accounting because the time of supply is the earlier of: The time an invoice is issued by the suppler to the recipient or when any payment is received by the supplier.
• Payments basis. If you file GST returns on a payments basis, knowing whether a transaction is a payment is crucial as this governs whether it can be included in the return. Non-resident businesses seeking a refund of New Zealand GST paid under section 54B of the GST Act are also registered on the payments basis.
• Secondhand goods input tax deductions. A secondhand goods input tax deduction is only available where payment has been made, regardless of filing basis. 

Accordingly, Inland Revenue has released a draft interpretation statement which, when finalised, will provide guidance around what constitutes payment for GST purposes.

The statement outlines that payment can be made in various forms beyond traditional cash transactions. These include transfers of property, provision of services, issuance of promissory notes or bills of exchange, and set-offs against existing debts. It is worth noting the draft interpretation statement views deferred payments as not qualifying as GST payments unless supported by separate loan agreements.

The statement briefly comments on anti-avoidance and in particular for arrangements where payment is technically established but in a way that fails the “Parliamentary contemplation” test. It also reminds readers that a deposit constitutes payment of a supply, with equal application to conditional and unconditional contracts.

Comment on this statement is open until 10 September 2025. Advice should be sought where payment is made using methods other than cash or its electronic equivalent.

Claiming GST on secondhand goods? Beware the traps!

Inland Revenue has released a draft interpretation statement which, when finalised, should clarify the rules around claiming input tax deductions for secondhand goods under the GST regime. Such deductions arise where GST registered taxpayers acquire such goods from non-GST registered suppliers (for example, a used vehicle dealership purchasing a secondhand car from a member of the public who has used it privately). 

The draft interpretation statement outlines the conditions under which a secondhand goods input tax deduction can be claimed. Key requirements include: 

• The goods must be secondhand
• The supply must be by way of sale
• The goods must be situated in New Zealand at the time of supply
• The supply must not be a taxable supply 

Payment must be made during the relevant taxable period and appropriate records must be kept.

The document provides a detailed discussion of each key requirement, with interesting examples explored including newly subdivided land, collectibles and goods created from old materials. Exclusions from the definition are also discussed, notably primary produce, livestock and fine metals.

The document also details records required to support a secondhand goods input tax deduction, specifically:

• The name and address of the supplier
• The date on which the secondhand goods were supplied
• A description of the goods
• Their quantity or volume
• The consideration for the supply

This requirement does not apply where the consideration of the supply is equal to or less than $200, as per usual.

The document goes on to discuss transactions between associated persons where stricter rules apply.

Relevant examples throughout the document illustrate practical applications, including cases involving funeral directors, antique dealers and property transactions.

Comment is open until 10 September 2025. Given the complexities involved, if you ever purchase secondhand goods, it is worth having any GST claim reviewed by your local Baker Tilly Staples Rodway advisor to confirm its validity.

Comment

Inland Revenue continues to take an “education first” approach, educating taxpayers about key issues before applying the big stick to the few who don’t adhere to the rules. It is worth noting that each of these draft statements covers topics in considerably more detail than previous Inland Revenue guidance, which was fragmented and in many cases had not been reviewed in decades.

The items covered are nuanced and care needs to be taken in marginal scenarios. If you have any queries in relation to the above items or would like to make a submission, please contact your Baker Tilly Staples Rodway advisor.