GST on goods imported to New Zealand (Pharmacy Guild – March 2014)

Atul Mehta from Moore Stephens Markhams Chartered Accountants explains the issues facing New Zealand retailers when goods are imported from overseas.

Summary

Currently purchases made directly from overseas under $400 are not subject to GST or duty charges in New Zealand.

People buy online as often the same product can be purchased for less than they can buy it in New Zealand.

Being provided with great service and having a pleasant shopping experience will encourage people to buy from you, rather than online.

The Retail Association has recently been making a lot of noise about GST on goods imported to New Zealand, but what is all the fuss about?

There are two main issues with goods being purchased overseas making their way into New Zealand without being subject to the GST net:

  • The government’s revenue stream is diminished. Some have estimated this to be as much as $300 million per year.
  • New Zealand retailers often feel they are unable to compete with prices offered by overseas businesses whose goods are not often subject to GST in New Zealand.

Currently purchases made directly from overseas under $400 are not subject to GST or duty charges in New Zealand. While the government would like to reduce this threshold or even to impose GST and duty charges on all items purchased overseas, administrators feel the additional cost of monitoring and policing this would outweigh the benefit of the additional revenue.

Clearly there are issues other than just goods ordered from overseas based websites arriving in New Zealand.

The main reasons people buy online include:

  • The often better selection of products from overseas suppliers
  • Consumers prefer to shop from home
  • The same product can be purchased cheaper online than they could at the shops in New Zealand.

New Zealand retailers feel they are unfairly disadvantaged by being forced to compete with foreign online retailers who are able to supply goods to customers in New Zealand, without the customer having to pay any GST.

These things are less important for a business (or individual) registered for GST and purchasing an item that is for business use, as they can claim the GST back in their GST return. However, for your everyday shopper purchasing something got personal benefit, the option to purchase an item cheaper due to the lack of GST is often rather too appealing to ignore.

This begs the question, “why can we get it cheaper overseas?” and the answer is not always to do with GST. There can be factors such as the location of New Zealand, cheaper wages and other costs overseas, but often the New Zealand sellers have traditionally placed higher mark-ups on their products than their overseas competitors and are reluctant to erode those margins due despite the ever increasing international competition.

From personal experience, being provided with the expected level of service, having a pleasant experience, and finding the best price, all form part of the decision surrounding where I shop. The first two of these three can be easily achieved by a local business. So if the price offered by a local business is not far off the mark, to me it seems to be a no brainer.

Whether any changes to the GST rules would impact on local businesses remains to be seen as there is unlikely to be any dramatic changes anytime soon.A bill currently before parliament includes changes to the tax rules relating to foreign superannuation funds held by NZ residents. Due to the complexity of the existing rules, many New Zealand residents have been blissfully unaware that a tax obligation even existed.

In a move for which the IRD should be commended, this new proposed legislation is intended to simplify the way superannuation funds are to be taxed. As part of the changes the IRD are also proposing an amnesty for those who have not paid tax in the past on withdrawals from such schemes whereby a concessionary rate will apply.

The new rules will apply to NZ residents who acquired foreign superannuation schemes while they were non resident. It is important to note that these rules only apply to employer related super schemes and not government paid social security pensions as these are generally dealt with upon receipt.

In the future tax will be levied on lump sums drawn from the foreign super schemes. The longer you have been living in NZ the more tax you will have to pay when you either make a withdrawal or transfer your pension to NZ.

What this means is that the longer you leave your pension offshore the greater amount of tax you will have to pay when you eventually bring those funds back to NZ.

Withdrawals within the first four years after you become resident will not be taxable. Once this four year exemption period ends, the tax liability on a withdrawal will generally be calculated using a new “schedule method”. This method provides a particular fraction based on how long the person has been resident in NZ prior to the withdrawal.

If you transfer your super savings to a kiwisaver fund in NZ then you will be able to withdraw funds from the transferred amount to pay the tax liability arising.

Foreign super schemes have always been subject to NZ taxes. However, the IRD recognise that due to the existing rules being so complex, many people have inadvertently made cash withdrawals without accounting for tax and have filed tax returns without even advising the IRD of their investment in the foreign super scheme. So the IRD have introduced a concessionary rate where only 15 percent of the lump sum withdrawn from 1 January 2000 to 31 March 2014 is subject to tax – this is a simple option that is intended to encourage compliance before the introduction of the new rules.

To use this option you will need to return the 15 percent of the lump sum amount in your 2013/14 or 2014/15 tax returns. If you do not use the option to pay tax on 15 percent of the lump sum then the law as it was at the time the withdrawal was made will apply. The original due date for payment of tax will also still apply.

If you are a member of an overseas superannuation scheme and it has not been included in your tax returns in the past then please contact your advisors immediately to establish your position and options.

Published in Contact Magazine March 2014. Written by Atul Mehta.

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