GST and The Fire Service Levy
amendment clarifies that payment of the fire service levy is consideration for the supply of goods and services made by the New Zealand Fire Service Commission.
Section 5(6AB) of the Goods and Services Tax Act 1985
An amendment clarifies that payment of the fire service levy is consideration for the supply of goods and services made by the New Zealand Fire Service Commission.
Background
The fire service levy is payable on all contracts of fire insurance covering New Zealand property and is used to fund the activities of the New Zealand Fire Service Commission. The levy has been collected since 1 July 1986. Concerns were raised about the application of GST to the levy because it was unclear if it could be regarded as a premium for a contract of insurance. It was also unclear if the provision of services by the Fire Service was a statutory obligation or a contractual one.
Under the GST Act and relevant case law, GST is imposed when there is a sufficient connection between a payment and any supply of goods and services made in return for the payment. Payment of a levy under a statutory obligation can create uncertainty around the requisite connection between payment of the levy and any supply of goods and services.
Section 5(6AB) deals with these uncertainties by specifying that payment of the fire service levy is consideration for the supply of goods and services by the New Zealand Fire Service Commission to the person who takes out fire insurance covering New Zealand property (the insured). The new section is intended to preserve the status quo concerning the collection of GST on the fire service levy since 1 October 1986 when GST began.
Key features
Section 5(6AB) clarifies that the payment of the fire service levy by an insured person is consideration for a supply of goods and services by the New Zealand Fire Service Commission.
Penalties, penalty interest or default interest charged under the Fire Services Act 1975 on insurers are not included within the scope of section 5(6AB). The GST treatment of such charges will depend on the application (or not) of the exemption for penalty interest under section 14 of the GST Act and/or ordinary principles.
Application date
The amendment applies from 1 October 1986.