However, a significant change has been made to how Not for Profit organisations can claim GST credits on their assets. Put simply, if a Not for Profit organisation has claimed GST credits for the maintenance or purchase of an asset and then sells that asset in the future, the sale proceeds will be subject to GST regardless of whether the asset has been used to generate taxable activity if:
It’s also critical to note that these new rules are retrospective and apply to any asset sales completed on or after 15 May 2018.
The new rules could also apply to many other instances of asset disposal including insurance claims paid on an asset as this is treated as a sale for GST purposes.
There is a limited opportunity for organisations to act prior to 31 March 2021 to ensure that GST is not payable on any future sale.
For example, a church historically purchased a hall next to its premises for the use of parishioners as well as the public for a small fee; fees collected have never exceeded the $60,000 compulsory GST registration threshold.
The GST input credit for the purchase, ongoing maintenance and operating costs of both the hall and the church claimed under the GST registration of the church.
If the church is sold, under the new rules GST will be payable. As a result, the church has chosen to treat the activity within the property as non-taxable and exclude it from the GST base. The church has stopped claiming any input tax deductions for the capital and operating costs of the property.
The church therefore makes an election to the IRD (prior to 31 March 2021). As part of this election, the church has calculated the GST repayable which is:
The IRD accepts this election and the GST repayable under the calculation is included in the next GST return filed by the church.
GST will not be payable on the eventual sale of the church.
There’s still time for Not for Profit organisations to protect their existing assets from this new legislation, but you will need to act quickly. Prior to 31 March 2021, NFPs will need to ensure they won’t be charged GST output at the time of asset disposal by:
There’s also an opportunity to take advantage of a transitional rule in these GST changes if you have claimed GST tax credits that you anticipate being less than the output tax for the disposal of an asset that appreciates in value.
Again, it’s critical that Not for Profit organisations act quickly, so please be sure to get in touch with your Grant Thornton advisor to expedite the necessary steps to protect your assets from the rule changes.