Local authorities change of accounting basis
Legislative change means from 1 July 2013 all local authorities must account for GST on an invoice basis, rather than a payments basis.
Sections 19A(1)(a)(ii), 19AB, 19C(1), and 87 of the Goods and Services Tax Act 1985
Background
From 1 July 2013, all local authorities must account for GST on an invoice basis, rather than a payments basis. Most local authorities have accounted for GST on an invoice basis since 1 July 2001, but a small number have been allowed to continue to account on a payments basis after this date.
The most recent Order in Council, which allowed certain local authorities to account for GST on an invoice basis, expired on 30 June 2013 and has not been renewed.
Key features
New section 87 has been added to the Goods and Services Tax Act 1985 (GST Act). It contains transitional rules for the affected local authorities.
Three other amendments have been made to reflect the expiry of the Goods and Services Tax (Local Authorities Accounting on Payments Basis) Order 2009, and the introduction of this new section:
- section 19A(1)(a)(ii) has been repealed;
- section 19AB has been repealed;
- section 19C has been amended to include a cross-reference to new section 87.
Detailed analysis
When a GST-registered person changes from a payments basis to an invoice basis, section 19C sets out that they must perform a wash-up calculation based on their outstanding debtors and creditors at that time.
New section 87 contains transitional rules which will allow affected local authorities to spread payment of the amount calculated as a result of that wash-up calculation over 72 months. The 72-month period begins on 1 July 2013. The transitional provision is included to mitigate the potentially significant cashflow implications which would likely have arisen for the local authorities if they had had to pay the sum determined by the wash-up calculation in one instalment when the Order in Council expired.
Section 19AB has been repealed, as no further Orders in Council will be made to permit local authorities to account for GST on a payments basis. Consequentially, section 19A has also been repealed.
A cross-reference to new section 87 has also been included in section 19C of the GST Act.
Application dates
These amendments apply from the date of Royal assent, being 17 July 2013.
The repeal of section 19A applies from 1 July 2013.