|Approved by||Chief Financial Officer|
|Date Procedure Took Effect||16 April 2002|
|Last approved revision||10 April 2017|
|Sponsor||Chief Financial Officer|
|Responsible officer||Financial Controller|
The procedures relate to the treatment of taxation as they apply to a range of areas within the University.
Please note that taxation law is constantly changing as a result of new legislation and case law. While the information within these procedures is regularly reviewed, the Financial Services Division is unable to guarantee the accuracy of this information. As such, this is a general guide only.
- Goods and Services Tax
- Fringe Benefit Tax
- Financial Services Division
- Inland Revenue Department
- Treasury Accountant
- Financial Services Division Treasury Accountant
The University is increasingly doing business with organisations outside of New Zealand. Some of the business transactions may have taxation implications and it is important to consider and plan for these before any contracts or agreements are signed. If you are doing business outside New Zealand please the Financial Services Division Treasury Accountant to seek advice on possible taxation issues BEFORE you make any agreement with your overseas organisation.
The University is exempt from Income Tax as it is a Public Authority in terms of Section CB3 of the Income Tax Act 1994. However the University is registered for GST, is liable for FBT, and must account for tax on Source Deduction Payments (includes PAYE on salaries and wages). There are also special issues relating to taxation of non-residents and the payment of scholarships. Each of these matters are discussed in turn below.
Goods and Services Tax
The University is a Registered Person for the purposes of GST. Registration imparts an obligation to charge GST on goods and services provided by the University (supplies – output tax). The tax is aimed at the end-user of goods and services and as such the University is allowed to offset the GST collected on outputs with the GST it is charged on expenses (input tax).
When invoicing a client you must distance yourself from the actual expenditure items and concentrate solely on the income and the nature of the goods or services you have provided.
When assessing whether or not a claim for GST can be made, you must concentrate solely on whether the invoice received is a valid invoice for taxation purposes.
GST is levied at the standard rate of 15 per cent. There are however several exceptions to this rule.
University income – when to add GST to invoices sent to customers?
When invoicing a client you must distance yourself from the actual expenditure items and concentrate solely on the income and the nature of the goods or services you have provided.
Goods and Services Tax (GST) at a rate of 15 per cent must be applied to all invoices issued by the University unless it can be proven that the income falls into one of the 3 following categories:
- exempt supplies (generally donations)
- zero rated supplies (generally overseas exports)
- agency situations (when the transactions do not belong to the University)
Invoices to the Crown or Public Authorities always include GST. There are no exceptions.
If there is any doubt about whether the supply includes GST, it is preferable that GST is added to the invoice raised or deducted from the funds received.
These supplies are not subject to the provisions of the GST act. Therefore no GST is charged on these supplies.
Exempt supplies include:
1. Donations and Gifts
Donations are unconditional gifts made voluntarily to the University of Otago. The Act defines unconditional gift as: “a payment voluntarily made to any non-profit body for the carrying on or carrying out of the purpose of that non-profit body and in respect of which no identifiable direct benefit arises or may arise in the form of a supply of goods and services to the person making that payment, or any other person where that person and that other person are associated persons”.
Donations are generally exempt supplies and are not subject to GST as the donor does not receive a direct identifiable benefit in the form of a supply of goods and services or the benefit received is not conditional or dependent on the payment.
A review of the agreement must be made to determine whether a benefit is being provided to the donor. It is important to determine if the University has to provide anything in return for the donation. The more that is provided, the more likely the scenario that GST should be added to the invoice.
If there is any doubt about whether the donation includes GST, it is preferable that GST is added to the invoice raised or deducted from the funds received.
2. Potential terms that could exclude the payment from being a donation:
- If the acknowledgement is simple in nature then the donation will retain its GST free status.
- If the acknowledgement is more like advertising, GST should be added to the invoice.
- Whether the recognition required is advertising or a simple acknowledgement is a question of fact and degree.
- If the terms of the donation require that the scholarship be named after the donor, this would not in itself establish that the donation is advertising
- If the University is required to actively advertise that the scholarship was named after the donor, The donation is more likely to be advertising and subject to GST.
- If the donor was a corporate body, then the mere fact then the scholarship is named after this body could provide an advertising benefit to the corporate meaning the income could not be regarded as a donation and GST should be added to all invoices raised.
2.2 Conditions attached to a donation:
The payment of a donation which states what the funds are to be used for will not in itself change the treatment from a donation to a supply subject to GST. However, if there is a requirement that in return for the donation, goods or services are provided back to the donor, the payment cannot be a donation.
2.3 Intellectual property rights:
If the donor receives the intellectual property rights arising from the research or other project at the end of the project, the payment cannot be a donation; so it is a supply of services and GST should be added to the invoice.
Any rights the donor has to veto the release of the information could also be deemed to be a benefit as there is a right of control over the information, so GST should be added to the invoice.
However, requiring a copy of the research or project findings to be provided to the donor or the public should not result in a benefit being passed to the donor as long as the donor or an associated person has no right to commercially exploit the research. This type of condition should not exclude the payment from being a donation.
Limited reporting back to the external party on the progress of the student or project updates is acceptable, as long as no rights are passed to the external party or student. Other simple reporting including updates on progress to the donor is also acceptable.
If a 50 page technical document outlining the intellectual property is requested, then it can be inferred that the entity is receiving a benefit in relation to the funding supplied and GST should be charged.
If the donor withholds payment because the standard of the report is not good enough, that in itself is not a trigger that GST should be charged. It may only mean that the conditions around that gift have not been fully met and all the boxes on the funder’s checklist cannot be ticked.
All grants or donations from the Crown or Public Authorities include GST under a special provision in the GST Act. Therefore all income from these entities cannot be considered a donation. Crown entities include Marsden, HRC and FRST.
Residential accommodation – flats
Residential accommodation (such as the University owned flats and Toroa House) are considered exempt supplies. No GST is charged on these supplies and conversely no GST is able to be claimed on any expenses incurred in the making of these exempt supplies.
However, where residential accommodation is let for short periods of time (generally less than 6 weeks at a time i.e. University flats rented for conferences), the rentals received are subject to GST and full GST of 15 per cent should be added when charging guests.
Accommodation in a residential establishment – Colleges
GST is charged at a reduced rate of 11.40 per cent on all accommodation in University Residential Colleges (e.g. Unicol, Arana). This rate is recalculated periodically. Full GST is able to be claimed on all expenses relating to this supply.
This rate is not the full 15 per cent GST rate due to the following:
- University Colleges are classed by the IRD as a residential establishment which is a hotel or hostel where 70 per cent of the occupants are expected to reside for more than 4 weeks.
- The act then says that GST is able to be charged at 60 per cent of the standard rate of GST on the accommodation portion of the fees in a residential establishment for the whole of the period if the recipient agrees to stay more than 4 weeks (60 per cent x 15 per cent = 9.0 per cent). The accommodation portion includes charges for cleaning, maintenance, electricity, phone TV etc.
- All other charges such as meals, drinks and laundry are charged at the full GST rate of 15 per cent.
- Therefore the University split rate of 11.4 per cent is based on 60 per cent of the accommodation fees being at a rate of 9.0 per cent and the remaining 40 per cent of charges relating to charges at the full rate of 15 per cent.
- GST at the full rate of 15 per cent should be charged on all short term accommodation where the recipient has agreed to stay for less than 4 weeks. (for conferences etc).
Commercial accommodation – Executive Residence
GST is charged at the full rate of 15 per cent on all commercial accommodation (motel / hotel type premises). Full GST is able to be claimed on all expenses relating to this supply.
However, if a resident stays for more than 4 weeks in commercial accommodation then GST is charged on the full amount of accommodation for the first 4 weeks then GST is charged on only 60 per cent of the accommodation in excess of 4 weeks (equating to a GST rate of 9.0 per cent). All other charges such as meals, drinks and laundry are charged at the full rate.
Financial services and life insurance
Financial services such as fees received for banking services are exempt supplies. Life insurance income is also an exempt supply. No GST is charged on these supplies and conversely no GST is able to be claimed on any expenses incurred in the making of exempt supplies.
University of Otago treatment of exempt supplies
All donations are GST exempt so no GST should be added to invoices or deducted when funds are received. All donations should be coded in the Finance One to dissection 1311 (in the project ledger – donations for research projects) or 1911 (in the general ledger – other donations).
As these supplies are not subject to the provisions of the GST act, a tax invoice should not be issued. However, the University requires an invoice to be raised for all University supplies, therefore a standard University invoice should be raised in Finance One with the words “Tax invoice” and the University GST registration number deleted. This is achieved when the GST rate of “E” (for exempt) is chosen on input to Finance One.
Invoices for other exempt supplies, e.g. residential accommodation should be entered into Finance One using the GST rate of “E”.
A good description should always be written on all invoices raised, including the reason why the funds have been considered a donation.
Examples of exempt supplies:
- Donations from charities and other trusts to the University for research do not generally include GST as the charity or trust cannot benefit from the research received. Examples are Blind Foundation, Public Trust or private trusts. What we are looking for here is could the organisation profit from the research? Could they use the findings to make additional income? If it could not, then it should be a donation.
- Donations from Companies in New Zealand generally include GST as the company will benefit in some way from the research done. E.g. research contract with Fonterra on milk products. This will always include GST as Fonterra will expect to use the research to either promote its products or make the product better in some way which should increase sales.
- Donations for some scholarships include GST. These include the Heinz Wattie scholarship for excellence in food technology. As this scholarship is named after the company, the company is receiving a benefit in the form of advertising for the scholarship.
- Donations for a scholarship from an individual or private trust generally do not include GST as the individual or trust can not make a profit or benefit in other ways like receiving advertising.
- If a Company in New Zealand wanted to contribute towards the costs of an academic to go to an overseas conference, then we would need to consider what the Company would receive in return for its contribution. If the Company received reports, or the promise of owning future intellectual property etc that could enable the Company to profit from the trip, then GST should be added. If only a brief report was given to the Company and no other tangible item was given to the Company, then the contribution could be regarded as a donation and no GST charged.
Zero rated supplies
Zero rated supplies are supplies which are subject to GST with the rate of GST being set at 0 per cent. Full GST can be claimed on expenses related to these supplies.
Services and goods provided to overseas entities can be zero rated for GST as long as the services are clearly provided to the overseas entity only and not enjoyed by any associated entity in New Zealand.
What we are looking for here is that the overseas entity does not have a branch or significant direct sales in New Zealand which will benefit from the research provided.
Physical items posted directly to an overseas address can be zero rated as long as we post it directly from the University. If it goes through a second person before being exported or is sold to a person who is within New Zealand at the time who will take it with them on a plane, then it cannot be zero rated.
University of Otago treatment of zero rated supplies
Invoices treated as zero rated can be coded to any income code and the GST number and words tax invoice should be printed on every invoice.
The GST rate of “Z” should be used when processing these invoices in Finance One.
A good description should always be written on the invoices. “As attached” is useless if there is nothing attached stored in Finance One to refer to. If the invoice does not include the full amount of GST, then the reason for this must be stated on the invoice. If it is for exported goods then this should be mentioned.
- International students paying their own costs (including tuition fees) while being taught in New Zealand are subject to the full 15 per cent GST.
- Sales of journals, books and other tangible items directly to overseas addresses do not attract GST as the University is physically exporting these goods. Sales of these items to overseas persons within New Zealand (i.e. people on holiday or temporarily in New Zealand) do attract GST however as the University is not the entity exporting the goods.
- The postage and packaging however, attracts GST in most cases. This is because when you buy stamps at the post shop, the post shop does not know whether the postage is being used for overseas or within New Zealand. Items posted overseas using the University bulk mail however do not attract GST as the items are sorted before they reach the post office therefore the post office know that the items are being exported and do not charge the University GST on the postage.
- Research contracts with overseas organisations do not include GST if the research is directly exported and the overseas organisation does not have a presence in New Zealand that would benefit from the research. Where the Company has a presence in New Zealand as well as worldwide, on negotiating the contract, the Company will usually ask the University to invoice its New Zealand office so that it can recover the GST.
- On charging of video conferencing facilities to overseas entities does attract GST as there is a small section in the GST act that states any item that is related to land and buildings situated within New Zealand cannot be zero rated.
- If one of the staff members at the University of Otago presented a lecture overseas and we were asked to bill the overseas conference for the costs associated with this ie airfares, we would charge GST on all of the expenses incurred in New Zealand and no GST for those expenses incurred with the international flights and overseas expenditure. This is because the services were performed overseas.
- If we were charging an overseas organisation for costs incurred by the overseas organisations staff members while visiting Otago University we would add GST to the invoice. This is because, even though we are charging an overseas entity, the costs were incurred by their staff members while in New Zealand so GST should be added to the invoice.
When acting as an agent, the University is only party to the transaction as a middle man receiving the funds and immediately passing them on. The income and expenses relating to the transaction are never intended to form part of the University’s financial statements.and should not go through the University’s books.
These transactions are generally very rare and should be treated with caution. In an audit situation, the University has to be able to prove that an agency agreement exists. The IRD would examine contracts and all paperwork around the transactions. If any item in these documents was unclear, the University would be subject to GST on the transaction.
The University of Otago is acting as an agent where the University is authorised to act on behalf of the external party either expressly or impliedly. The University therefore has no rights to the funds received.
It is not necessary that the contract/agreement between the University and the external party specifically states that the relationship is in the nature of an agency. If the actions of the parties imply that the University is acting as an agent, then these provisions can apply. However, the University would be in a safer position if the contract/agreement clarifies the intentions of the parties.
An agency agreement may exist if the following items occur:
- Where the actual transaction is between the funder and the student. The University is only handling the transaction as a convenience for the funder.
- The University pays out exactly the same amount it receives to a third party.
- If the agreement is for a scholarship or employee, no employment relationship exists between the University and the third party, instead the employment relationship is between the funder and the third party.
- If there is a problem with the student (i.e. they decide not to stay at University), then the funder applies to the student for a refund of the scholarship funds
- The funder chooses the recipient of the scholarship
There is generally not an agency agreement if:
- If there is a problem with the student (i.e. they decide not to stay at University), the University would then request a refund of the scholarship funds from the student. However, the University may be obliged to refund the funds back to the funder whether or not the funds have been repaid from the student.
- The scholarship contract is between the student and the University with the funder just gifting the money to the University
- The University chooses the recipient of the scholarship
The FRST post doc contract indicates that the agreement is not an agency agreement because of the following points:
- The University receives more funding than it is paying to the student or post doc
- The funding comes to the University
- The fellow is an employee of the University
- The University has the obligation to report to the funder
- The University provides an indemnity, which covers the post doc (as an employee)
- The University has the ability to terminate the agreement (although the post doc fellow does as well)
- The post doc fellow is subject to PAYE, has holiday pay entitlements, and is subject to general employment terms which would be unusual in nature in an agency relationship. If it was an agency relationship, the funding body would indemnify the University for those types of things.
- The post doc need not be an employee of the funder for the University to be acting as an agent, but would have to be working for the funder which would mean the University would not have those employment obligations. If the University has these employment obligations then it is very unlikely that the parties are working under an agency agreement.
This is similar to the scenario if an employee of an accounting firm was to come to work on a project for the University and there was an employment issue during that period. The accounting firm could not come to the University and ask for compensation as the University is only acting as agent – the employee is actually employed by the accounting firm.
If the University invoices $100 to the funder, then the University keeps $20 and pays the student $80 then it is not an agency agreement, but is subject to normal GST rules.
If the University receives $100 and pays out $100 then it is more likely to be considered an agency agreement.
If the University pays the student $120 and receives $100 in funding from the funder then it is more likely that it is not an agency agreement as the University has additional obligations to the student.
In the case of many research contracts, the post doc is often paid more than is received from the funders (the University Department makes up the difference). The University actually employs the post doc and deducts PAYE. If this is the case, then the agreement cannot be considered an agency agreement.
University of Otago treatment of agency transactions
It is preferable not to invoice the funder where an agency agreement exists, instead a schedule of students and fees should be provided to the funder. The funder then will pay the students’ fees.
When invoicing for other items that are not tuition fees, under the agency rules, the University requires that the invoice states clearly that the University is acting as agent only in the transaction.
The University should never be referred to as a contractor in agreements. It is better for the University to be referred to as the host organization or agent. The use of the term contractor could result in GST being payable as it could be considered that the contract is with the University.
A paragraph in the contract which includes the wording “The University is acting in the capacity as an agent only in collecting the funds and paying them as a stipend to the student.” is required if possible.
True agency transactions should be coded to the balance sheet so both sides of the transaction always come to zero. All income and expenditure items should be recorded at their gross GST inclusive amounts. No GST should be recorded in the University‘s books. No GST claim should be made for expenditure and no GST income should be paid to the IRD as the transactions do not belong to the University. The University does have an obligation to the third party to inform them of all transactions on a monthly basis so if any GST claims / payments need to be made, the third party can attend to these.
Examples of agency transactions
- Some scholarship situations can be agency situations. I.e. Bright Future scholarships and the Universities New Zealand Te Pokai Tara (previously known as New Zealand Vice Chancellors Committee) scholarships. This is because the agreement for the scholarship is between the funder and the student and the University just acts as a means to pay the funds to the student.
- A doctor (employee of University) who was on a Ministry of Health Committee in Wellington incurred some expenses to travel to the MOH Committee meeting. The University paid the doctor for his expenses (meeting fees, taxis and mileage) and we then invoiced the Ministry of Health for them.
As the expenses included the mileage reimbursement, we added GST to the mileage reimbursement. The Ministry of Health had rejected the GST saying it was a reimbursement of expenditure only.
In this case, we must look at the underlying relationship between the Doctor and the Ministry of Health and who has the ultimate liability for the reimbursement. If the contract was between the doctor and the Ministry of Health, then the University was merely acting as agent in paying out the doctor for his costs and on charging the Ministry of Health. In this case, the invoice should not add GST to the mileage.
If the contract was between the University and the Ministry of Health to provide a representative on the Committee, then GST should be added to the mileage when on charging it to the Ministry.
These are typically where the invoice is merely correcting a situation that was incorrect. The question to ask is should this entry have gone through the books of the University? Was the transaction merely a mistake and should not enter the University books? This could be travel costs that should have been private costs of the individual travelling but were accidently charged to the University in error. The University is therefore merely acting as agent for the other party (so really, the other party is actually acquiring the travel).
University of Otago treatment of incorrect transactions
Invoices treated as incorrect transactions under the agency rules should be coded directly against the original transaction. I.e. if the original transaction was for a private portion of overseas travel, then the income (credit) should be coded directly against overseas travel.
GST should be charged / paid exactly as the original transaction reflected the charge. If the charge is to reimburse NZ cell phone calls and GST has been charged on the original transaction from the cell phone provider, then the cost of the calls plus GST should be reimbursed by the employee. If the charge is for international travel costs for an employee and no GST has been charged on the original transaction, then no GST should be invoiced to the employee.
Examples of incorrect transactions
- Where the University pays for overseas travel on behalf of a student or staff member on the understanding that the student or staff member will reimburse the University for their share of that invoice (i.e. where the University has an understanding that it will only fund travel up to a certain level and the employee or student will fund the balance). In this case, the University pays for the travel and the staff member or student refund back to the University their portion of the cost. If the original invoices for these costs did not include GST (because it was for overseas travel) then GST is not added to the invoice asking for reimbursement. If the original invoices did include GST (i.e. it was for domestic travel), then the reimbursement from the staff member or student should include GST.
- This also applies where an overseas party has agreed to pay international travel costs of a staff member. The University in this situation is acting as an agent only as the overseas party was actually acquiring the travel (see section 4 on agency transactions). This situation could occur when an academic is asked to present at a conference.
- This is distinct from the situation where the University is buying the travel (or purchasing books) and then on selling it to the student, or where the University is acting as principle and acquires the airfares and it is only a secondary thing that it gets refunded. In this circumstance GST must be added to the invoice to the student irrespective or not of whether GST was charged in the first instance.
- Another recent example was where a staff member travelled to Wellington to a meeting of one of the Health Board advisory committees. The staff member asked the University for reimbursement of his costs to attend (including a mileage claim for travel to the airport), then the University invoiced the Health Board for these costs. The question we had to ask here was, in what capacity was the staff member attending the meeting? We had to check the contract (if any) for his attendance at this meeting. If he were attending as a representative of the University, then GST would be added to every item on the invoice (including his mileage to the airport). If he were attending the meeting in an individual capacity (i.e. he was the best in his field irrespective of where he worked and the University was not mentioned) and the contract was with him as an individual, then we could reasonably say that the University was acting as agent only in reimbursing the individuals costs. The costs were actually private costs and should have been claimed from the Health Authority directly by the employee.
When we on charged the Health Authority we would not add GST to the mileage portion of the invoice, as by invoicing the Health Authority, we were merely reversing a charge that should never have been borne by the University. This situation was resolved by the Health Board in the end who gave the academic taxi chits and directly reimbursed the academic for all his costs involved with all future meetings.
Conferences run on behalf of another organisation
Conferences are occasionally administered by the University but run on behalf of another group. This is typically a group of academics or a small professional society where the role of running the conference is passed from University to University on an annual basis.
University of Otago treatment of conferences run on behalf of another organisation
Conferences should normally be run through the University in the normal way, GST should be charged on all conference registration fees collected and claimed on all conference expenses.
If the “surplus” from the conference is required to be given to the next group hosting the conference, then the next group should invoice the University for this amount.
If the University is truly acting on behalf of the society running the conference then it is acting as an agent only. In this circumstance all invoices must be completed under the name of the society, not the University (therefore the University debtor system cannot be used). No GST can be claimed by the University on any expenses for the conference and no GST is paid on income received. If the Society is registered for GST, then that society must account for the GST and any other related taxes itself.
All transactions relating to the conference should be coded to the balance sheet (dissection “9259” Agency Clearing Accounts). The conference should also be set up as a “D” activity.
The University is obligated to provide a full summary of all transactions to the other organization monthly so that the organization may account for its GST collected and paid.
Other interesting invoice examples:
- Most items charged to Public Authorities and New Zealand entities should have GST added to them. These include salaries and employee related expenses on charged to Health authorities for joint clinical staff employed principally by the University.
- Research contracts with a New Zealand Company where the Company receives rights to intellectual property must always have GST added as the company is receiving a benefit for the contribution it made.
- Items such as mileage charged to another New Zealand entity should have GST added to them irrespective of whether or not the original transaction had GST on it. This is because the supply is between two GST registered organisations (the University and the other NZ entity). To invoice these costs to a New Zealand company, ensure that on your work papers you list all the expenses to be charged (using the GST exclusive cost) then add GST to the total of these costs. I have seen some examples where staff have used the GST inclusive cost then added GST again when on-charging another company! (The only exception to this rule is where the University is acting as agent only and did not expect the transaction to appear on its books – see agency section above).
- A Department asked to reverse GST deducted from sales of textbooks to students. They had purchased the books from the UK and hence not been charged GST. They had then sold the books to students for the same price not realising that they should always include GST in this sale price as the supply of the books was between the University and the students who are both resident in New Zealand.
- Another example is a Department who didn’t charge the overseas customer any GST on a course that was delivered in New Zealand because the customer was from overseas. The key here is that the course was delivered in New Zealand. GST should have been charged.
- If staff members purchase University assets (the most common one is computers) the price the staff member pays always includes GST as GST was claimed when the asset was originally purchased. The price paid must always be the market value for that item. If it is less than the market value then FBT will be payable on the difference.
Goods and Services Tax (GST) at a rate of 15 per cent can be claimed on all invoices for expenditure providing a valid tax invoice is held for each transaction.
Valid tax invoices – rules of what must be included:
1. For supplies less than $50
- We do not need to have a tax invoice, however, we must believe that GST must have been charged and the person issuing the invoices is actually registered for GST (unless the supply is for a second hand good).
- Therefore, we cannot claim GST on invoices for supplies under $50 from persons or organisations not registered for GST.
- Even though we do not need to hold a proper tax invoice to make the GST claim, the University still requires that all payments must have adequate documentation.
2. For supplies between $50 and $1,000
- We need to hold a tax invoice.
- It must state the words “tax invoice”
- It must include the name and GST number of the supplier
- It must have a date
- It must include a description of the goods and services provided
- It must show the consideration for the goods or services and a statement that this amount includes GST
3. For supplies over $1,000
- We need to hold a tax invoice.
- It must state the words “tax invoice”
- It must include the name, address and GST number of the supplier
- It must have a date on which the invoice was issued
- It must include a description of the goods and services provided
- It must include the quantity and volume of goods and services
- It must show the total amount of tax charged, the consideration for the goods or services excluding GST and the consideration for the goods or services including GST.
The invoice must be provided within 28 days of a request to issue the invoice.
Examples of expenditure that does not attract GST
- Bank fees
- Reimbursements such as Mileage reimbursements
- Expenditure incurred overseas
- Supplies made from unregistered persons
GST can be claimed on purchases of second-hand goods even though no GST was charged or the goods were purchased from an unregistered person.
To be classed as a second-hand good the item purchased must have been used previously by someone else.
The goods must be situated in New Zealand at time of supply of supply and payment for the goods must have been made.
To be able to make a claim we have to hold the following information:
- The name and address of the supplier
- The date the second-hand goods were acquired
- A description of the goods
- The quantity or volume of the goods
- The consideration for the supply
So as long as all these tests have been satisfied, and these items are listed on an “invoice” passed for payment (per University rules), you can claim the GST content even though it may never have been charged.
When gift vouchers are purchased, they are similar to buying cash. Therefore no GST claim can be made for the purchase of gift vouchers.
From the suppliers point of view, they should not charge GST on the sale of gift vouchers as they are not considered a “supply” under the GST act as they are merely exchanging cash for another form of cash. When the gift vouchers are subsequently exchanged (in lieu of cash) for goods or services, this is the point where GST should be charged.
Scholarships are defined as: any maintenance or allowance with respect to attendance at an educational institution under a scholarship or bursary is exempt from [PAYE] tax.
Care must be taken with the wording of all documentation provided to students including scholarship advertising material.
Scholarships to students should be awarded based on a broad criteria and it is preferable that they be open to a group of students not just a selected student.
Scholarships can only qualify for exemption from PAYE if there is no link to employment duties. Therefore scholarships must be granted for reasons other than reimbursement for work performed.
Where there is a teaching component in the scholarship, this should be separated from the scholarship component and treated as a separate contract. This is because if there is a requirement to work for the scholarship, it would not qualify for the tax exemption and would be subject to PAYE.
Where mentoring or promotional activities are required to be performed by the student, as long as the activity does not constitute an employment relationship, there should be no effect on the student’s ability to receive the scholarship as a tax free payment. However, this could cause an issue from the point of view of the funds coming from the external party if the requirement for promotional activities constituted more than a simple acknowledgement, but a “service” to the external party.
Where the scholarship requires that the student will continue in the teaching profession at the end of the scholarship, as long it does not state that they will work for a particular organisation, this should not prevent the scholarship from being non-taxable.
Care must be taken when wording all items of correspondence including offer letters and advertising relating to scholarships to students.
If the wording of the scholarship says the student must use the scholarship to pay for his or her tuition fees, there is a disadvantage to the University as the University cannot claim a GST deduction for the payment of this part of the scholarship.
If the arrangement is that the University will waive the tuition fees, then it could be argued that the supply was for nil consideration and there would be no GST implications.
Therefore, if the scholarship is for University fees then the wording of the scholarship should be that the scholarship is for a “fee rebate” or “waiver of fees” or “free tuition provided” and not say for the payment of student fees. A fee rebate will then allow the University to reduce the fees charged (and thus not have to pay GST to the IRD) and the student will get the benefit of the GST exclusive amount of the fees (which will allow the student a greater cash benefit).
The same applies if the scholarship is payment of accommodation costs at a University Hall of residence. The wording of all correspondence should refer to an “accommodation fee rebate” or “accommodation fee waiver” or “free accommodation provided” or “accommodation in a University College is provided for the period of the scholarship”.
If the scholarship includes funds for other goods and services provided by the University, such as binding costs, and books these too should be waived by the University. This would mean that there would be no income from these goods and services and no GST would need to be returned.
GST claims for expenditure related to scholarships
Cash payments to students for scholarships do not attract GST so no GST claim can be made.
Student fee rebates should be handled by the student fees office. The student fees will originally be charged to the students, then a credit will be input “waiving” the fees for the amount of the scholarship. The student is only liable for fees in excess of the scholarship awarded.
If books, binding or travel are provided to students as part of their scholarship, the University should purchase these (and claim the GST) then provide the travel or books free of charge to the student under the scholarship. This maximises the value to the student.
Other costs incurred by the University for scholarship transactions are subject to the usual GST rules and if GST has been charged by the supplier on the original transaction, then GST can be claimed by the University.
Where the scholarship is determined to be one where an agency agreement exists, the full GST inclusive values of all transactions are coded to the balance sheet. (Transactions in this case are receipt of funds from the funder and payment of the funds to the student) No GST claims can be made on these transactions as the University is only acting as agent for the transaction.
The student fees and accommodation costs should be charged to the individual students (and GST returned on the supply), then a schedule of students where the fees are to be paid should be sent to the funder. Where consumables are being supplied by, and payment made to, the University of Otago directly, these should be subject to GST. It would be preferable that they are invoiced separately to the external party as this is a service being provided by the University of Otago and subject to GST.
These are subject to GST which is collected by Customs.
Reimbursements versus allowances
GST may only be claimed on expenses where it is charged by a registered person and the documentation standards are met. Hence when staff are reimbursed for their out-of-pocket expenses GST can be recovered to the extent that GST was paid by that staff member on those costs and the tax invoices are included with the reimbursement claim. This is quite different from the payment of an allowance for which no GST can be recovered.
This distinction is shown in the following example:
Travel Allowance paid to staff member of $1,150 – no GST is recoverable as no Tax invoice is held for the payment. Cost to department $1,150
Staff member pays out of pocket conference expenses of $1,150, obtaining tax invoices, and then submits reimbursement claim for $1,150 – split as $150 GST and department expense of $1,000. Cost to department is $1,000.
Hence the department utilises resources more effectively by paying the actual costs rather than paying grants or allowances.
GST on Finance Leases
A Finance Lease (or Lease-to-own or Hire purchase agreement) is effectively a two part transaction; one part is the purchase of some goods and the other is the financing of the purchase. For GST purposes, only the purchase of goods includes GST as financing costs are not subject to GST. The GST on the purchase price of the goods is claimable by the University on entering the contract.
Staff should realise however that the Education Act requires all University borrowing to be approved. Departments do not have any authority to enter these agreements and should contact their financial analyst for further advice on how to obtain the necessary authorisations.
Fringe Benefit Tax
Fringe Benefit Tax (FBT) is a tax payable on non-salary payments and benefits provided to employees of the University. It was introduced by Parliament to eliminate loopholes whereby employees could reduce the tax they paid by electing to receive other benefits in lieu of salary payments.
FBT is payable on the total taxable benefit provided and is calculated at a rate of between 11.73 and 49.25 cents in the dollar depending on the salary level of the person receiving the benefit. (A tax deductible FBT rate of 49.25 cents equals income tax at 33 cents on a gross cash payment.)
GST is also charged at a rate of 3/23rd of the total GST inclusive taxable benefit. This is because the benefit received was private in nature and as GST was claimed on the original purchase so this is to repay this amount to the IRD. In the University's financial statements, this cost is added to the FBT dissection.
The University must file a return of fringe benefits provided, and account for fringe benefit tax, to the Inland Revenue Department by completing a return each quarter. This return is completed by the Treasury Accountant. The FBT laws detail the benefits on which employers must pay tax. FBT is a complex issue and advice should always be sought if there is doubt as to whether FBT applies to a particular situation.
There are four main categories of benefits subject to FBT tax:
- Category A – Motor Vehicles.
- Category B – Low Interest Loans.
- Category C – Free, Subsidised or Discounted Goods and Services.
- Category D – Employer Contributions to Funds, Superannuation Schemes and Specified Insurance Policies.
A quarterly return listing all gifts and other benefits provided to staff is required from all Departments within 10 days of the end of each quarter. An online form is available throughout each quarter for staff to add gifts for FBT purposes.
Most motor vehicles which are available for the private use or enjoyment of an employee (including travel between home and work) are liable for FBT, even if the vehicle is not actually used privately. The FBT charge is based on the number of days the vehicle is available for private use and the assessed value of the benefit is currently set at 20 per cent of the GST inclusive cost of the vehicle.
Examples of situations when FBT is payable:
- When an employee uses a University vehicle for any private running.
- When a University vehicle is taken home because the employee is on call, but the employee was not required to attend any emergency calls during the period the vehicle was at home.
- When a vehicle is taken home on a Friday night and left garaged all weekend and returned on the Monday. FBT is payable for all 4 days as the vehicle was “available” for private use even though the University may have prohibited its use and the employee did not use it.
Calculation of approximate FBT payable:
original GST inclusive cost of vehicle = $25,000
assessed value of the benefit is 20 per cent p.a. of the GST inclusive cost of the vehicle (this is a rate set by the IRD) = 5 per cent per quarter
approximate salary of the employee using the motor vehicle = $70,000. This equates to the top FBT rate of 49.25 per cent
number of days the vehicle was available for private use in the quarter = 4
number of days in the quarter = 90
the formula to calculate the FBT owing is as follows:
FBT owing = $25,000 × 5 per cent × 49.25 per cent × 4/90 = $27.36
GST on FBT is calculated at 3/23rds of the GST inclusive taxable benefit received = ($25,000 × 5 per cent × 4/90) /23 × 3 = $7.25
Therefore the total cost to the Department for the 4 days of private use is $34.61.
Examples of situations when FBT is not payable:
- When an employee uses a University vehicle to travel to a destination other than his place of work and the employee is away from home for more than 24 hours. This could be when an employee needs to travel to Christchurch for a 2 day conference. The day he leaves for the conference, all the days he is at the conference and the day he returns from the conference are exempt from FBT.
- When an employee takes a vehicle home and was required to attend an emergency call-out during that day (between 6pm and 6am on any weekday or at any time during the weekend). An emergency call-out is defined as being essential to the operation of any plant or machinery of the employer or emergency services relating to the health and safety of any person. The day that the call out occurred is not subject to FBT.
- When a University vehicle is garaged at the University premises or is broken down or being repaired.
- When an employee uses a work related vehicle for travel between home and work (as long as all the conditions relating to work related vehicles are adhered to).
- Where an employee is required to work out of Dunedin and the vehicle is taken home, so it can be used in the morning to go directly to the job out of Dunedin, as long as the vehicle use is merely an incidental part of the entire trip, and the vehicle is stored at home and cannot be used for private use.
A work-related vehicle is normally exempt from FBT even when used for travel between the employee's home and place of work, or for private use which is incidental to the normal business use.
A vehicle is a work-related vehicle if it is not designed for carrying passengers. Vehicles covered by this exemption include utilities (including extra cab and double cab), vans, light pick-up trucks, and vehicles with a gross laden weight of more than 3,500 kilograms. Motor cars can come under this exemption if their rear seats are permanently bolted down.
The vehicle must have the employer's name (or if rented, the owner's name), logo, acronym or other business identification clearly and permanently displayed on the outside.
If the vehicle is taken home, then it must be a condition of employment that the employee takes the vehicle home, and the vehicle is not available for any other private use on that day. This should be checked up on regularly.
Telephone rental costs
Where the account and directory listing are in the employee's name, the employee is liable for the cost of the telephone (even if the number is listed as an after hours number for the University). If the University reimburses the employee's home telephone costs, the payment is monetary remuneration and the University must deduct PAYE.
If the reimbursement or payment by the University is justified for business purposes and is 50 per cent or less of the rental cost, then s73 of the Income Tax Act allows the amount to be exempt from income tax in the hands of the employee, and FBT is not payable by the University.
Low interest loans
Interest free Regalia advances attract an FBT liability on the difference between the actual interest charged and the market interest rate.
Free, subsidised or discounted goods and services
These are goods or services provided to staff at below cost or less than the current market value unless the benefit is enjoyed on the employers premises.
Examples of situations when FBT is payable:
- The purchase of a new University computer by a staff member at below its current market value. The difference between the current market value (if it is new, this is the original cost) and the price paid by the employee is subject to FBT.
- Car parks (not on University premises) provided to employees at less than cost. Eg the University rents a carpark in the local parking building for $600p.a. and the employee pays $500p.a. for it. FBT is payable on the difference of $100p.a.
- Membership fees paid on behalf of an employee to a group without a direct relationship to the employees work. E.g. Gym fees, golf club memberships (there should be no examples of these type of fees paid in this University)
Examples of situations when FBT is not payable:
- Subsidised Tuition Fees are exempt because they are consumed by eligible staff on the University premises.
- Free meals provided to employees on University premises
- Purchase of a University computer by a staff member at or above its current market value
- Purchase of a University vehicle by a staff member at its current market value (because of the value of this transaction, this must be supported by an independant valuation)
- Membership fees paid on behalf of an employee to a group with a direct relationship to the employees work. E.g. ICANZ (Institute of Chartered Accountants fees) for an accountant working at the University
- Purchase of work related clothing for employees eg overalls for property services staff
- Car parks provided free to employees on University owned or leased premises
Gifts to employees
A gift is defined as a benefit that can be consumed or enjoyed at the employees discretion and is not enjoyed in the course of employment duties.
Examples of situations when FBT is payable:
- Flowers given to a staff member for a bereavement
- A bottle of wine or meal voucher given to an employee in appreciation of extra effort
- A gift given to a member of staff who is leaving the University. FBT is payable only on the Departmental contributions to this gift,not on contributions from staff.
Examples of situations when FBT is not payable:
- Departmental Christmas party. If employees are invited to a predetermined place at a pre determined time FBT is not payable
- Gifts given to students who are not employees of the University as long as they are not in lieu of wages
- Gifts given to visiting speakers etc. who are not employees of the University
- A gift given to a member of staff who is leaving the University if it has been funded entirely from contributions from staff
- Bottles of wine and food given to employees to consume at a Departmental function at a set time and place
Calculation of approximate FBT payable:
Original GST inclusive cost of gift = $100
There is a set rate of FBT for gifts under $2,000 it is 49 per cent
FBT owing = $100 × 49 per cent = $49.00
GST on FBT is calculated at 3/23rds of the GST inclusive taxable benefit received = $100 × 3/23 = $13.04
Therefore the total FBT cost to the Department for the gift is $62.04.
Employer contributions to Superannuation Funds
Employer contributions to the Government Superannuation Fund do not attract FBT because they are paid to the Treasury and not to a manager of a Superannuation Fund.
Source deduction payments
A withholding payment is generally a casual payment or applicable where the relationship of the parties is not strictly one of employer and employee.
Certain types of payments are defined by Regulations as “withholding payments”. Withholding payments are taxed at a special flat rate of withholding tax. Tax is calculated on each dollar of the gross income (income before allowing any deductions). This rate varies according to the type of work done.
Full details are in the Income Tax (Withholding Payments) Regulations 1979 and amendments.
Important note: Earner Premium is not deducted along with withholding tax. Earner premium is calculated at the end of the year when the payee files a tax return. The Premium is the payee's responsibility.
The University deducts income tax from the salary payments of its staff in accordance with the PAYE (Pay As You Earn) tables set by the Government. The University is legally obliged to deduct the correct instalments and may be prosecuted or penalised for failing to observe the correct taxation requirements. PAYE deductions are not made from payments to independent contractors.
University employees are required to fill out a Tax Code Declaration (Form IR 330) for taxation purposes on commencement of employment at the University.
The University pays PAYE deductions twice each month to Inland Revenue – by the 20th of the same month and the 5th of the following month. Staff do not have to complete an IR 330 form at the start of each tax year if their tax codes are not changing. The only employees who are required to complete an IR 330 form are new employees and those who want to change tax codes. Employees using a special tax code last year will have to re-apply each year if a special tax code is to be used.
Every month the University is required to electronically file details of every individual's payments and tax deductions including the earner premium amounts.
Allowances are treated as part of salaries and wages and taxed in the same way unless Inland Revenue has ruled otherwise.
They are usually paid:
- As a result of an Industrial Award or Agreement,
- As a result of an agreement made between the employer and employees,
- An “In House Agreement”.
These allowances are either in the form of benefit allowances or reimbursing allowances.
Benefit allowances (eg board and lodgings)
Benefit allowances are payments made as well as salary or wages which give a benefit to the employee. A benefit allowance is taxable along with the employee's wages in the pay period the wages are paid.
Benefit allowances also include food and/or accommodation provided to employees.
The value of the benefit is the difference between:
- The value of the benefit provided, and
- The amount paid by the employee (if any).
- The net value of this benefit is to be added to the employee's wages each pay period. PAYE is to be deducted from the total, eg,
- Market value of accommodation provided $ 300.00 p.w.
- Less rent paid by employee $ 200.00 p.w.
- Value to be added to wages and taxed $ 100.00 p.w.
- If the employee pays no rent the value to be taxed is $300 per week.
- Any allowance paid to an employee instead of providing accommodation is fully taxable.
Reimbursing allowances are payments made to employees to compensate them for expenses they have incurred while on University business. They are not taxable insofar as they reimburse actual expenditure.
Specified Superannuation Contribution Withholding Tax
From 1 April 1989 some Employer Superannuation contributions became liable to withholding tax. This tax is called “Specified Superannuation Contribution Withholding tax” (SSCWT). It is calculated at a flat rate of 33 cents per dollar. There is no end of year assessment. Contributions to schemes approved or classified by the Government Actuary are liable to SSCWT.
A “Specified Superannuation Contribution” is any contribution to a superannuation scheme that the employer makes for an employee's benefit. Amounts deducted from the employee's pay to be paid to a superannuation scheme on the employee's instructions, are not “Specified Superannuation Contributions”.
Superannuation Contribution Withholding Tax is payable on the “grossed up” amount of contributions, not the actual contribution made.
Accident compensation earner premium
An Earner Premium is payable by all employees to cover ACC costs of non work-related injuries. The collection of the premium is carried out by employers who pass the deduction to IRD who forward it to ACC.
The Earner Premium is built into the PAYE Deduction Tables.
The maximum annual amount of earnings liable for the Earner Premium is $110,018 ($1,706 per week). Once an employee's earnings exceed this amount, there is no further premium to pay.
Student Loan Scheme deductions
Under the Student Loan Scheme, tertiary students can accept a loan from the government and pay it back once they start working. The Student Loan Scheme Act 1992 sets out how student loan borrowers will repay their loans. Refer to Student Finance for more information.
The University as an employer must deduct student loan repayments from eligible employees' salary or wages, and pay the amounts deducted to Inland Revenue along with PAYE deductions payments.
It is the employee's responsibility to declare the previous receipt of a student loan by using one of the loan deduction codes on the IR 330 form. Deductions of loan repayments are only required from the date notice is given by the employee. Employers are not responsible to deduct repayments if the borrower has not given the correct code.
Taxation of non-residents
Generally, a person who comes to New Zealand, stays less than 183 days, and does not have a permanent place of abode in New Zealand, is taxed as a non-resident. A non-resident is liable for New Zealand tax on income for personal services performed in New Zealand, and other income from New Zealand sources.
PAYE is deducted from gross income in the same way as for employees resident in New Zealand.
If the employee wishes to claim exemption under a Double Tax Agreement or the “92 day rule” visitors should claim it in their tax returns.
The “92 day rule” is where:
- The employee is not resident in New Zealand for New Zealand tax purposes, and
- The employee's visit is less than 92 days, and
- The total length of time in New Zealand, in any income year, was less than 92 days, and
- The income earned in New Zealand is taxed in the employee's country of residence (a certificate from the taxation authority in that country is required), and
- The employer is not resident in New Zealand, and
- The employee is not a “public entertainer”. (Earnings of non resident entertainers are liable to withholding tax at a rate of 20 cents in the dollar.) The giving of lectures is regarded in this instance as “public entertainment”
Scholarships are exempt from tax where they provide for full-time education of the recipient, and where no service is rendered (present or future) by the recipient to the funds provider. In this context “service” includes the provision of information.
The following guidelines have been developed to ensure that the tax-exempt status of scholarships is preserved:
- Students should undertake academic work limited to six hours weekly.
- Reporting to the funds provider should be undertaken by supervisors or department heads, not by the students.
- Students should not be placed in situations in which they seem to be acting as contract research workers. Students should have no employment obligations to the funds provider.
- Students should not be contractually involved with the funds provider.
- Ideally, funding arrangements for scholarships should only include students' stipends plus allowances for limited working and travel expenses. Major projects should be set up separately from scholarships wherever possible.
- Students should be awarded scholarships according to the University's normal selection procedures.
- Specific research topics should be determined by students in conjunction with their academic supervisors.
Contact for further information: Manager, Research Higher Degrees and Scholarships Office.
Contact for further information
For further information, contact: