Many businesses that have multiple, related companies overlook the opportunity to be able to form a group for GST purposes. Whether this is due to a lack of awareness or otherwise, it may be of benefit to take a moment and consider the benefits and implications of forming a GST group.
For those unfamiliar with the notion of ‘grouping’ for GST purposes, the idea is to allow related companies to return GST as if they were a single entity. Two or more companies can be registered as a GST group provided the same persons hold at least 66% of the voting interest of both companies.
The process of registering as a GST group entails one company being nominated as the representative member of the GST group. A single GST return is filed for that group in the name of the representative member. Each group member remains responsible for issuing tax invoices with their own GST registration number and complying with GST record keeping requirements. All members, once grouped, will have the same GST taxable period and GST accounting basis. Turnover calculations used to determine the available filing frequencies and whether the payments basis can be applied are calculated on a GST group basis.
There are several advantages in forming a GST group, the key advantage being that taxable supplies between members of the group may be disregarded. This allows for goods and services to be supplied within the group with no GST implications. This can provide cash-flow advantages as GST does not have to be paid on any intra-group taxable supplies, and does not have to be captured within the group’s accounting system.
Administrative costs may also reduce because a single GST return for the group in the name of the representative member is filed, instead of individual returns for each company.
However, it is important to note a potential downside to GST grouping is that all group members are jointly and severally liable for GST payable by any member of the group and will continue to be liable for the period whilst it was a member, if it leaves the group.
Given the potential advantages, a GST group is something that should be considered if you are running multiple related companies. Applications for GST group registrations can be made by applying to the IRD.
All information in this newsletter is to the best of the authors’ knowledge true and accurate. No liability is assumed by the authors, or publishers, for any losses suffered by any person relying directly or indirectly upon this newsletter. It is recommended that clients should consult a senior representative of the firm before acting upon this information.