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New Zealand Issues GST Guidance On Directors' Fees

by Mary Swire, Tax-News.com, Hong Kong

08 July 2015


The New Zealand Inland Revenue Department has released Public Ruling BR Pub 15/10, setting out the Commissioner's view on the GST treatment of directors' fees.

The previous Ruling, BR Pub 05/13, was issued on April 1, 2005, for an indefinite period. However, section six of the Act was amended with effect from June 30, 2014, by section 187 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014. BR Pub 05/13 was withdrawn from June 30, 2015.

Two amendments were made to section 6 that relate to the GST treatment of fees paid to directors. The first amendment moved the former proviso to section 6(3)(b) to a new section 6(5). Before the amendment, the proviso to section 6(3)(b) treated services performed by directors as being supplied in the course or furtherance of a taxable activity when the director accepted the office in carrying on that taxable activity.

The second amendment introduced a new section 6(4). Section 6(4) provides that when an employee is engaged by a company to be a director and the employee is required to account for any fees received to their employer, the employer will be treated as supplying the services to the company. The employer will therefore return GST output tax and the company will be able to claim input tax on the payment for these services. The Ruling has been updated to reflect the new structure of section 6 and to explain the effect of section 6(4).

The Ruling and Commentary explains whether directors' fees are subject to GST. The Ruling and Commentary also consider whether a company engaging a director is entitled to claim input tax deductions for fees paid to that director. It sets out the GST treatment for fees paid to director in two broad situations. The first is where the director contracts either directly with a company or through a third party. The second is where a director is either an employee of a third party or a partner in a partnership.

A director must charge GST on their supply of services when the following requirements are satisfied:

  • The director is registered or liable to be registered in respect of a taxable activity that they undertake; and
  • The director accepts the office in carrying on that taxable activity.

A director is not required to charge GST on their supply of services as a director where:

  • They are engaged as a director in their capacity as an employee of a third-party employer; or
  • They are engaged in their capacity as a partner in a partnership.

Essentially, if a registered person accepts an office as a director in carrying on their taxable activity, the fees that person receives for providing their services will be subject to GST. A flowchart that illustrates the GST treatment of directors' fees from a director's perspective can be found in Appendix 1 to the Commentary.

Where the director has been engaged in their capacity as an employee, they may be required to account for their fees to their employer. In this situation, the employer is deemed to make the supply of services, rather than the director. If the employer is registered, or liable to be registered, for GST, the employer will be required to account for GST on the supply of the director's services to the company.

Where the director has been engaged in their capacity as a partner in a partnership, the partnership is deemed to make the supply of services, rather than the director. If the partnership is registered, or liable to be registered, for GST, the partnership will be required to account for GST on the supply of the director's services.

From the perspective of a company that engages a director, the company may claim an input tax deduction for the fees it pays, if:

  • The company is registered; and
  • GST was charged on the directors' fees and the company holds a tax invoice for those fees.

Other requirements of the Act may also need to be satisfied depending on individual circumstances.

TAGS: tax | value added tax (VAT) | goods and services tax (GST) | fees | New Zealand | services | Other | Tax

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