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MHK Report on GST Registration for Directors

Monday 15 January 2018, 1:52PM

By Beckie Wright

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MHK Chartered Accountants recently released an article regarding Withholding Tax and GST on director’s fees, following  the IRD’s recently released Interpretation Statement 17/06.

Ian Malcolm, Managing Director of MHK Chartered Accountants Auckland, commented that, “Following this, there remains some confusion as to whether a director should register for GST.  In general, anyone who conducts a Taxable Activity greater than $60,000 either in the preceding twelve months or where there are reasonable grounds for believing the value of all taxable supplies will exceed $60,000 in the next twelve months.

So superficially it would seem that if director’s fees are or are likely to be greater than $60,000 pa, a director should register for GST. “

However, let’s explore this a bit further.  A taxable activity for GST includes when:

There is some form of activity.
The activity is carried on continuously or regularly.
The activity involves, or is intended to involve, the supply of goods and services to another person for a consideration  

The IRD have clarified in this for us in Public Ruling BR Pub 05/13:

If a natural person is engaged as a director and the services are not undertaken as part of carrying on the person’s own taxable activity, the engagement will be excluded from the term “taxable activity” due to the application of section 6(3)(b).

If a natural person is engaged as a director as part of carrying on his or her taxable activity, the proviso to section 6(3)(b) will apply and the services will be deemed to be supplied in the course or furtherance of that taxable activity.

Ian Malcolm, Managing Director of MHK Chartered Accountants Auckland, warns that “Although this may seem unfair, in that a director may wish to register for GST to claim back GST on expenses, the IRD can take the correct position and reassess a director’s GST stance with unfortunate consequences if they are successful.  However if that person carries out other taxable activities, they can choose to register for GST and generally be financially better off.”

MHK Chartered Accountants are fringe CBD Auckland Chartered Accountants who specialise in business structuring and legally minimising all types of taxation obligations, and welcome a no-obligation discussion free of charge.  For more information please contact Ian Malcolm 09-917-2893 or 021456225, or Aaron Neels 09-917-2897. For more information on chartered accountants Auckland, business structuring and accounting firm Auckland please go to https://aucklandaccountant.net.nz/ .