The issue has been a vexed one for some time. Normally, there would not be much point in a body corporate registering for GST because most are in a neutral position with outputs closely matching inputs.
But that changes when there is a big bill to pay to fix a leaky building. Many repair jobs cost millions of dollars.
The argument about whether GST refunds should be available on those bills has gone back and forth for some time.
The IRD has said it does not think bodies corporate should be able to register for GST. But in two court cases, it conceded that bodies corporate were carrying on a taxable activity and could claim back the GST content of repair work, wben though no GST was paid, nor input tax credit claimed, on the compensation payment.
It then argued it did not want those cases used as a legal precedent.
The IRD said last year it was aware it was an area with a lot of uncertainty, and was working to clarify it.
On Friday, McClay said the decision to exclude bodies corporate from GST obligations was about pragmatism, fairness and eliminating compliance costs.
“Most bodies corporate are not currently registered for GST, to now require them to do so would impose significant compliance costs. Excluding them will ensure that the legislation aligns with operational practice and provides clarity and certainty.”
He said other property owners could not register for GST or receive GST refunds for building repairs. Making the tax treatment of bodies corporate similar to other property owners was fairer, he said.
“This Government strives for fairness, consistency and the reduction of compliance costs in the tax system. This clarification for bodies corporate is another example of that.”
McClay said the Government intended to include the change in the next available tax bill and for it to apply retrospectively, with a saving provision to preserve tax positions that people have taken before last week's announcement.
"Most bodies corporate will not have to take any action at all."
A consultation paper has been prepared to show how the changes would be put into effect. The Government invites submissions on whether the proposed new rules achieve the intended policy outcomes.
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