Grouping Companies For GST Purposes
Many businesses that have
multiple, related companies
overlook the opportunity to be
able to form a group for GST
purposes. Whether this is due
to a lack of awareness or
otherwise, it may be of benefit
to take a moment and
consider the benefits and
implications of forming a GST
group.
For those unfamiliar with the notion of ‘grouping’
for GST purposes, the idea is to allow related
companies to return GST as if they were a single
entity. Two or more companies can be registered
as a GST group provided the same persons hold
at least 66% of the voting interest of both
companies.
The process of registering as a GST group entails
one company being nominated as the
representative member of the GST group. A single
GST return is filed for that group in the name of the
representative member. Each group member
remains responsible for issuing tax invoices with
their own GST registration number and complying
with GST record keeping requirements. All
members, once grouped, will have the same GST
taxable period and GST
accounting basis. Turnover
calculations used to
determine the available filing
frequencies and whether the
payments basis can be
applied are calculated on a
GST group basis.
There are several advantages
in forming a GST group, the
key advantage being that taxable supplies
between members of the group may be
disregarded. This allows for goods and services to
be supplied within the group with no GST
implications. This can provide cash-flow
advantages as GST does not have to be paid on
any intra-group taxable supplies, and does not
have to be captured within the group’s accounting
system.
Administrative costs may also reduce because a
single GST return for the group in the name of the
representative member is filed, instead of
individual returns for each company.
However, it is important to note a potential
downside to GST grouping is that all group
members are jointly and severally liable for GST payable by any member of the group and will
continue to be liable for the period whilst it was a
member, if it leaves the group.
Given the potential advantages, a GST group is
something that should be considered if you are running multiple related companies. Applications
for GST group registrations can be made by
applying to the IRD.