TaxBlog

This article out in the Herald yesterday that talks about rent to buy arrangements.

The interesting part from a tax point of view is on page 3:

Hamilton accountant Ross Barnett says his client is facing a test case over how the Inland Revenue will treat GST liability when a rent-to-own scheme is signed. Usually a trader buys a property with the intention of reselling it, so claims GST on the purchase, and pays GST on the resale profit.

If the trader finds a buyer who wants to rent-to-own the property, they account for GST on any amount paid toward the purchase price. When the tenant opts to buy, GST is returned on the sale price less the amounts already paid.

An Inland Revenue spokesperson confirmed to the Herald on Sunday that if the arrangement provided that part of the rental payments would be put toward the purchase price of the property, then it is likely that the property trader would need to account for GST “on the entire price of the property as soon as they receive any payment toward the cost of the property. This will be the case even if the amount of rent paid is not sufficient to cover the cost of the GST.”

Barnett says the hard thing for developers or traders is that they’re dealing with an option. “Fifty per cent of them would probably fall over… so they end up paying GST when no actual sale occurs.”

I would agree with Mr. Barnett. I don’t see how the IRD can class an option as anything other than a right for the tennant to purchase the property.

Watch this space, Tax Blog will keep you up to date on breaking developments on this story.

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LIFE STYLE EXTRA (UK) – Keira Knightley faces a tax bill over a goodie bag.

The ‘Pirates of the Caribbean’ actress was stunned toView the profile for Keira Knightley on Celebrity Spotlight realise she would have to pay a £2,000 VAT bill after being handed a bag of freebies worth £6,000 at a charity dinner.

The Silver Spoon Hollywood Buffet gives guests free gifts in return for their endorsement.

The bag contained diamond earrings worth £4,000, Franco Sarto shoes and a Gorjana necklace. There was also a Magaschoni cashmere jumper, a designer watch, Spanx underwear, a Cusp bikini, Cover Mineral make-up and Plank yoga mats.

A source told Britain’s Daily Star newspaper: “Keira had no idea new US tax laws mean American-based celebrities have to pay tax on free gifts. That’s why the Oscars committee are axing goodie bags.”

The 21-year-old star gladly paid the £12 entrance fee to the Los Angeles event, all of which goes to charity.

However, she is fuming that she will have to pay out a fortune for any freebies worth more than £145 when she returns to the UK.

The source added: “Keira was not impressed. She took the bag to be polite. You don’t expect to be charged for a freebie. She wouldn’t mind if it’s going to charity, but it’s not.”

And the rest of us would be happy with a 6,000 pound gift bag…

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Thousands of demonstrators took to the streets of Hong Kong on Sunday to protest against the government’s proposal to introduce a Goods and Services Tax in the territory.

This march indicates that a GST would seriously impact trades and businesses and they are very anxious to tell the government that they do not wish it to implement it,” she commented.

In a statement, the Financial Services & the Treasury Bureau said that the proposals put forward in the tax reform consultation document are not meant to be conclusive, but are intended to stimulate “rational and informed discussion” on the issue.

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But such a tax could open the door to tax dodging.

As Financial Secretary Henry Tang Ying-yen rolled out the GST proposal Tuesday, the Customs and Excise Department was muted on how the proposed levy might affect smuggling in Hong Kong, a city whose early history is closely tied with piracy.

“It is inappropriate for customs and excise to comment on issues relating to GST at this moment when public consultation is still going on,” a department spokesman said.

Tang’s consultation document makes it clear exports will not be taxed in order to “preserve our overall competitiveness as a leading logistics and trading hub.”

But goods entering Hong Kong “for home consumption” will be subject to the tax. Importers who bring in goods for transshipment elsewhere – a sizeable 75 percent chunk of all imports, calculated by value – will have their GST payments refunded.

The government is also proposing a package of special arrangements to relieve cash flow issues for the import- export sector, including specially designated temporary warehouses and deferred payments schemes.

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APN will not be liable for goods and services tax related to the masthead sale and leaseback arrangement it established when it acquired New Zealand Herald’s then owner Wilson & Horton in 2001.

Changes to GST rules outlined in the tax legislation now before Parliament mean an APN subsidiary set up to facilitate the sale of its mastheads to US investment bank JPMorgan in 2001, and subsequent lease back to the company, will not be liable for GST.

APN could potentially have been liable for $137.5 million in GST plus substantial interest costs on the transaction which was valued at $1.1 billion.

APN chief financial officer Peter Myers said the company had been discussing its leaseback arrangement with Inland Revenue for some time.

“As part of those discussions, yes we brought it to their attention, but it’s just a matter of getting it clarified. The point is, business-to-business transactions should be neutral and this really shouldn’t have been in the frame. We welcome the fact that it’s been clarified.”

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 The EU is looking at modernising the VAT regime on financial services.

Current VAT legislation (adopted in 1977) exempts financial services and insurances. This creates “hidden VAT” charges in supplies from financial and insurance services providers to other businesses.

They cannot deduct input VAT on services or goods (e.g. computers) supplied to them because the services they supply themselves, are exempt. Their charges to customers therefore reflect this VAT cost and, as it cannot be recovered by business customers, the charge cascades through the system, increasing the cost of the goods and services supplied.

With respect to the economic experts at the EU this is a small small amount over a large number of transactions. Granted some businesses spend more on insurance than others, but perhaps insurance and financial services on average makes up 1% of the cost of sales? There will not be much of a price decrease. The system NZ had worked well, Insurance is taxable, bank fees aren’t.

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NZ First is proposing to remove GST on petrol. They claim this would save the motorist 20c per litre, which equates to $11 per tank.

Interesting thought.

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Australia: GST Payable when deposit of 10 % of more paid.

The ATO has apparently imposed tax debts on thousands of businesses with a ruling yesterday that forces business to pay GST on the full sale price of goods and services – even if they have only taken a deposit of more than 10 per cent.

“Suppliers are today liable for GST remittance on goods they have taken … a deposit of more than 10 per cent on.“

This seems to be an interesting development with the winner being the government receiving a small cash windfall.

It will be interesting to see whether similar rulings will be slowly imported here. Although the GST time of supply rules have largely remained unchanged for the past 20 years.

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