GST LEGISLATION FOR METHODIST PARISHES AND METHODIST ORGANISATIONS

Transcription

1 Methodist Church of New Zealand Te Hāhi Weteriana O Aotearoa Administration Division Information Leaflet No. 64 P O Box 931 CHRISTCHURCH July 2007 GST LEGISLATION FOR METHODIST PARISHES AND METHODIST ORGANISATIONS

2 1. INTRODUCTION GST is a complex area. This information leaflet is only a summary and can not in any way contain a detailed explanation of GST. If in doubt, ask for help. The Methodist Church of New Zealand is registered as one entity for GST purposes (Group registration). This means all entities (Parishes for example) that are wholly part of the Methodist Church of New Zealand, do not have to register separately for GST purposes with the IRD. Group registration requires each entity within the Methodist Church that provides taxable supplies to complete a GST form (see Appendix 1) and file it with the Connexional Office each month. Those returns are then consolidated into one return and filed with the Inland Revenue Department. The GST number for all Methodist Church entities is: Union or Co-operating parishes do not qualify under the Methodist Church of New Zealand group registration arrangement. They must register separately with the Inland Revenue Department if they are required, or want, to be GST registered. If you fall within this category and are unsure as to whether you are registered or are required to register then contact Peter van Hout at the Connexional Office. Broadly, registration is compulsory if a person carries on a taxable activity and will make sales and other supplies in the course of that activity of more than $40,000 in the following 12 months. Registration is optional if the level of activity is below that level. All references to Box numbers relate to the box numbers shown on the IRD printed GST Return (IRD101). The Box number is also shown on the Word form (form GST/1) in a box for easy cross referencing. There is a copy of the blank IRD101 form attached as Appendix 1 and a copy of the manual GST Return (in Word format) required to be returned in Appendix 2. A copy of the Word format document is available upon request from the Connexional office in Christchurch. 2. Information to Return to Connexional Office The information that needs to be returned by parishes and other Divisions of the Church can be returned in one of two ways: The manual Word form (Form GST/1) by mail or fax The Excel spreadsheet form by mail or fax P:\Information Leaflets\No.64 GST Legislation.doc Page 2 of 13

3 If you are using a commercial computer based accounting package then use the standard GST report from the system to complete the Connexional form and send a copy of that report with your return. Which ever method you select, the return MUST reach the Connexional Office by the 25 th of the month following the period covered on the return. This can not be over emphasised. 2.1 How to Complete Form GST/1 A completed example is shown in Appendix 3. No. Item on Return Box Number (IRD101) Comments 1. Parish/Organisation Write down the Parish name or the name of the division that this Reference Number return relates to. This is the Parish/Division number that has been assigned to you. 2. This is our Return No.: If your next sequence number is known enter it here or we will enter it for you when it is received by the Connexional Office. Covering Period From 2 Enter the period that this return 3. TOTAL SALES AND INCOME for the period covers. It should be for one month. Enter the date in the format dd/mm/yyyy. 5 See 2.2 for a discussion on this. This must include GST and any zero rated supplies. 4. LESS zero rated supplies (if any) 6 See 2.3 for discussion on this. This is not used very often. 5. Total of 3 less 4 7 Subtract the value of 4 from the value of 3 and place it on this line, then divide this amount by 9 and place this in the line provided to the right. 6. Plus Tax Adjustments 9 Not used often, please contact the Connexional Office if you belief that you are required to fill this in. P:\Information Leaflets\No.64 GST Legislation.doc Page 3 of 13

4 No. Item on Return A. TOTAL GST Collected on sales and Income 7. Total Purchases and Expenses Paid by us Box Comments Number (IRD101) 10 Add/Subtract the total of 5 and 6 together to get total A. This is the Total GST Collected that we are required to return to the IRD. 11 See 2.4 for a discussion on this. This must include GST and we must hold a tax invoice. Divide the total by 9 to get the GST value. 8. Plus Tax Adjustments 13 Not used often, please contact the Connexional Office if you belief that you are required to fill this in. B. This is our Total GST Credit for Purchases and Expenses 10 SUBTRACT TOTAL B FROM TOTAL A AND ENTER HERE 14 Add the value of items 7 and 8 together to get the total GST on Goods and Services paid for by us. 15 Subtract Total B from Total A. This will give you either the amount of GST to pay the IRD or the amount of the refund that the IRD will have to pay us. Follow the remainder of the instructions on the form. Please remember that if you are required to PAY the IRD then please send us a cheque for the amount that needs to be paid. 2.2 Total Sales and Income for the Period GST Taxable Income Box 5 of the GST return Total sales and income for the Period : Income liable for GST is income received for/from the providing of a taxable activity/service. Whether income is liable for GST purposes is determined by what it is for, where it came from, and in the case of a sale of asset, how the asset originated. P:\Information Leaflets\No.64 GST Legislation.doc Page 4 of 13

5 There are three types of income for GST purposes: - Income Liable for GST - Income Not Liable for GST - Exempt Supplies Only Income Liable for GST should be included in your GST return. Do NOT include the other two types. A. Examples of Income liable for GST from a church perspective include: - Government Grants - Fees received for Special Services i.e. Weddings & Funerals - Sale of Purchased Goods and, in some cases, the sale of property - which should be discussed with the Financial Services Manager. - Charges for hire of buildings and facilities - Sale of Assets (refer Properties section) - Trading income - Advertising - Community Grants (always check the invoice received with the Grant, it will usually state whether GST is included or whether it is a donation and therefore not liable for GST) B. Income Not Liable for GST there are certain situations where income received by a church is not liable for GST due to the nature of the income being unconditional and therefore not directly related to a taxable activity. Examples of Income not liable for GST from a church perspective include: - Payments of Gifts - Koha - Donations - Offerings C. Exempt Supplies are supplies of income that are expressly excluded from GST Income: Examples of Exempt Supplies for GST from a church perspective include: - Supplies of financial services i.e. interest, dividends - Supplies of residential accommodation i.e. this relates to both rental received on parsonage/houses, and the sale of a parsonage/house - Supplies made by a non-profit body of donated goods and services i.e. any income earned on the sale of items donated, P:\Information Leaflets\No.64 GST Legislation.doc Page 5 of 13

6 - for example - a piece of land was donated to the Methodist church in 1949, they sold this piece of land in 2006, normally this land would incur a GST component being the sale of an asset, however due to the asset originally being donated, no GST is payable. 2.3 Zero Rated Supplies The following supplies of goods and services are zero rated: Exported goods; Goods sold by duty-free shops Goods due to be exported; Sealed bag goods; Certain sales of boats or aircraft; Goods situated overseas Goods applied in respect of temporary imports Goods for consumption on aircraft, yachts or ships outside New Zealand; Certain taxable activities disposed of as going concerns; and Newly refined precious metal 2.4 Goods and Services Paid by Us GST Taxable Purchases Box 11 of the GST return Total Purchases and expenses for the Period : GST can only be claimed on expenses that are incurred mainly for the purpose of providing a taxable activity/service. It can not be claimed on expenses relating to Income not liable for GST or Exempt Supplies. For example: you cannot claim expenses relating to a residential rental property, or the legal fees relating to the sale of a parsonage. The major activity of the church is the provision of religious services for which the greater part of the income received is not liable for GST. Therefore care must be taken when undertaking major renovations on church property. A proportion of the costs incurred on major renovations may need to be adjusted, based on the percentage of use of the building. If an expense related to both a taxable service and a non-taxable service is incurred, it can only be claimed if it is mainly for a taxable purpose. For example, a Church Hall is used 5 days a week for the local toy library, which pays a taxable rental for its use. The rest of the time the Hall is used for Sunday school and youth group activities, both of which are not taxable. The P:\Information Leaflets\No.64 GST Legislation.doc Page 6 of 13

7 parish spends $100,000 (GST incl) on repairs to the hall. As the expense is mainly in relation to a taxable activity, all of the GST can be claimed. However, $3,175 (ie 1/9 th of 2/7 ths of $100,000) must be included as an output adjustment in Box 9 of the GST return. If the supply does not relate mainly to a taxable purpose, then GST cannot be claimed, however, an input adjustment can be claimed in Box 13 of the GST return to the extent that the expense does relate to a taxable activity. For example, a Church Hall is used 3 days a week for the local toy library, which pays a taxable rental for its use. The rest of the time the Hall is used for Sunday school and youth group activities, both of which are not taxable. The parish spends $100,000 (GST incl) on repairs to the hall. As the expense is mainly in relation to a non-taxable activity, GST cannot be claimed. However, $4,762 (ie 1/9 th of 3/7 ths of $100,000) can be claimed as an input adjustment in Box 13 of the GST return Reimbursing Expenses GST can be claimed on the reimbursement of expenses incurred by members/staff of the church, as long as the expenses relate to a taxable activity. Things to note are: The reimbursement claim must include a copy of a taxable invoice (an eftpos receipt is not sufficient) if the total of the invoice exceeds $50. For items under $50 an eftpos receipt is fine. 3 Time of Supply The Church GST return is registered under the invoice basis NOT a cash basis. This means GST needs to be returned on income in the earlier of: (1) the period that an invoice is issued; or (2) the period that a payment is received in respect of that supply. In this context, an invoice does not mean a tax invoice it simply means any document evidencing a requirement to pay money. On the plus side it also means that GST can be claimed back on expenses in the period when a tax invoice is received; you do not have to wait until payment is made. Examples: The church receives an insurance invoice for the quarter on 15 th Feb, with payment due on 20 th March. GST can be claimed back on the invoice in the February GST return. P:\Information Leaflets\No.64 GST Legislation.doc Page 7 of 13

8 The church invoices the Toy library on a monthly basis for the use of the Hall, with invoices dated the last day of month i.e. 31 March. Payment is not received until 10 April. GST must be returned on the income in the March GST return. 4 GST Relating to Property Sales/Purchases The most significant area relating to GST for the church is the sale of Church property. It is the most complex, and the most significant - usually due to the amount of tax payable. If in doubt about the GST implications, ask the Connexional Office for advice. The current procedure for the sale of church property is that the sale requires approval to be granted from the Methodist Connexional Property Committee before the property is put up for sale. It is at this stage, prior to any sale agreement is issued, that the GST implications need to be determined. As a general rule, GST must be accounted for on the sale of church property (e.g. churches, halls, land). Residential property (eg parsonage, houses, and land relating to these properties) is not subject to GST. The only other exception is whether the property qualifies as an exempt supply due to the property originally being gifted to the church some time in the past. (Refer to exempt supplies in Sec 2C) - Supplies made by a non-profit body of donated goods and services As church property has usually been in the hands of the church for a long time, sometimes this information is not easily determined; a land story needs to be researched to determine this prior to any sale agreement being actioned. All Property Sale and Purchase Agreements relating to the sale of church property (not residential) need to include the following provision: Plus GST if any In this way the Church and Parish position is being protected. If it is determined that the property for sale has been donated to the church, then no GST can be charged on the sale of the property, if we do not have to return it for GST purposes we cannot claim it. P:\Information Leaflets\No.64 GST Legislation.doc Page 8 of 13

9 Time of Supply relating to Sale of Property: The Church GST return is registered under the invoice basis. This means GST needs to be returned on income in the period that an invoice is issued, not when payment has been received The normal time of supply rules apply here (see above). The liability to account for GST on the sale of a property is triggered in the period that an invoice is issued or any payment is received, whichever is earliest. The sale of all church property must be included in the parish return (unless a Co Operating venture), in the period that the contract goes unconditional. For example: A Parish signs an agreement for sale and purchase of church property on 1 March 2006 for $750,000. The contract goes unconditional and a deposit of $75,000 is received on 31 March 2006, with settlement on 31 October The GST on this sale needs to be returned in the March 2006 GST return, payable by 28 April for the amount of $83, This is one ninth of the total purchase price of $750,000. Even though full payment for the sale won t be received until 31 October, the parish needs to pay the full amount of GST payable. As you can see from this example the Parish will be out of cash by $8, until settlement. If a Co Operating venture sells church property, if they are not GST registered in their own right, it is their responsibility to ensure the church that owns title to the property i.e. Methodist/Anglican etc is advised of all details of the sale so the sale can be returned in the correct period. Implications of not returning Sale for GST purposes/or getting timing wrong: If income is not returned in the correct period the IRD will charge both use of money interest and penalties on the taxable amount. The amount of penalty payable is determined by IRD and can range from 20% -150% of the taxable amount depending on whether it was a timing issue (i.e. not returned in correct period but picked up in a future period) or whether it was deliberately not returned at all (tax avoidance). 20% on $83, is $16, quite a significant penalty for just getting a date wrong. P:\Information Leaflets\No.64 GST Legislation.doc Page 9 of 13

10 It is the Parish responsibility to: 1. Send fully completed GST returns for the correct period by due date. 2. Determine whether the sale of any property should have GST included. 3. Ensure the sale of property is included in their return and filed with the Connexional office. 4. Ensure the GST is returned in the correct period. Any penalties incurred will be at the cost of the Parish. This includes Co Operating ventures that do not inform the church that owns title to the property all information required to determine the tax liability and time of supply. Discuss the sale and the terms and conditions of sale prior to the sale and Purchase Agreement being signed. A copy of the Sale and Purchase agreement must be supplied to the Methodist Connexional Property Committee, as soon as it is signed. 5 Support Available: The Connexional office in Christchurch has GST expertise that can help if you have any doubts whether GST should be payable or can be claimed. Please contact Peter van Hout on , or peterv@methodist.org.nz A copy of the GST return is available in either Excel or Word format. The Excel spreadsheet will provide further help for the completion of the return and can be ed to you, if requested. P:\Information Leaflets\No.64 GST Legislation.doc Page 10 of 13

11 Appendix 1 P:\Information Leaflets\No.64 GST Legislation.doc Page 11 of 13

12 Appendix 2 P:\Information Leaflets\No.64 GST Legislation.doc Page 12 of 13

13 Appendix 3 P:\Information Leaflets\No.64 GST Legislation.doc Page 13 of 13