New Zealand Clarifies GST Taxable Activity Definition

The New Zealand Commissioner of Inland Revenue published the interpretation statement with a general overview of the meaning of the term taxable activity. In addition to providing a deep explanation and clarification of this critical term for GST purposes, the interpretation statements also replace two previously published guidelines: the 1990 “GST on disposal of assets used principally in making exempt supplies”, and the 1995 “Whether an activity is a GST taxable activity or a hobby.”

Commissioners' Analysis of the Taxable Activity

The interpretation statement provides key details on how the Commissioner views what constitutes a taxable activity, as one of the fundamental concepts of GST. The Commissioner underlined that in most cases, it is easy to determine whether a person is carrying on a taxable activity, as the nature and scale of the activity typically make it clear whether the statutory test is met. Therefore, the purpose of the interpretation statement is to guide cases when there is uncertainty on this matter.

In the analysis of this term, the Commissioner broke down the definition and clarified the meaning of key phrases, such as “activity”, “carried on”, and “continuously or regularly”. Furthermore, the interpretation statement notes that GST-registered persons may have multiple taxable activities under one registration, although separate legal entities can hold their own registrations for different activities.

However, taxable persons cannot divide a single taxable activity across multiple entities simply to stay below the GST registration threshold of NZD 60,000 per year. Notably, the definition of a taxable activity is not limited to activities within New Zealand. However, GST liability and registration requirements only apply to supplies made in New Zealand.

Conclusion

Even though the interpretation statement provided detailed clarification on one of the critical concepts of the GST, the Commissioner acknowledged that it cannot cover every possible factual, real-life situation. However, the interpretation statement touches on core legal principles and provides many examples, which may help interpret individual cases.

Source: New Zealand Inland Revenue