Bill to lift GST threshold to $40,000

By BRIAN FALLOW

WELLINGTON - About 25,000 small businesses will be able to opt out of registering for GST from October.

That is among a range of changes to GST in a tax bill to be introduced into Parliament next month. The measures are the outcome of a consultative process under way since a discussion document was released a year ago.

The threshold at which registration for GST is compulsory will be raised to $40,000 (of taxable goods and services supplied), from $30,000. The change is to correct the downward creep of the threshold caused by inflation.

Below the threshold people can still voluntarily register, meaning they can claim their input tax credits back at the expense of incurring compliance costs.

Another change aims to stop a loophole involving family farms.

Under the current law, if a registered person buys "second-hand goods" from a non-registered person, the purchase is not subject to GST. The registered person can, however, claim one-ninth of the purchase price as a notional input tax credit.

In several cases the courts have allowed the credit when the "second- hand goods" transferred was land.

The new tax bill will limit the tax credit that can be claimed, when the transaction is between associated persons, to the lesser of the GST component, if any, of the original cost of the property, or one-ninth of the purchase price or one-ninth of the market value.

Where no GST was ever paid - as in the case of farmland acquired before GST was introduced in the mid-1980s - no credit would be available.