Liquidators and receivers changing GST accounting basis

Section 19(3B) of the Goods and Services Tax Act 1985

An amendment has been made to the Goods and Services Tax Act 1985 to preclude liquidators, receivers and voluntary administrators from switching from the payments basis to the invoice basis when accounting for GST.

Background

If a GST-registered person meets certain conditions, for example, when the total value of taxable supplies for a 12-month period has not, or is not likely to exceed $2 million, the registered person may account for GST on a payments basis. Most registered persons (approximately 80%) account for GST using the payments basis. The GST Act allows registered persons who are accounting for GST on a payments basis to change to the invoice basis by applying to the Commissioner of Inland Revenue. There were no restrictions on registered persons making this accounting basis change.

It had become standard practice for liquidators and receivers to adopt the invoice basis for accounting for GST, immediately upon becoming a liquidator or receiver of a registered person that accounts for GST on a payments basis. Moving to an invoice basis allowed the liquidator or receiver to claim input tax credits for supplies received for which no payment had been made. Changing the accounting basis often resulted in refunds being made to the liquidator or receiver despite in many cases there being no realistic prospect that the debt, to which the input credit related, would ever be paid. The practice did not seem to have a commercial purpose other than to generate GST refunds.

Key features

New section 19(3B) of the GST Act prevents a liquidator, receiver, or administrator (as defined in section 239B of the Companies Act 1993) of a registered person who accounts for tax payable on a payments basis applying to change the registered person's accounting basis to an invoice basis.

Application date

The amendment applies from the date of Royal assent, being 2 November 2012.