The Commissioner has released important changes to how she applies GST law to the hunting industry (in particular the outfitter), specifically with reference to the overseas hunter.
To be clear, this is not a law change, but rather confirmation of how the Commissioner considers the law to apply. She has confirmed that her mind has not changed retrospectively and this is how she will apply the law from now.
The interpretation draws on the fundamental premise that GST is a consumption tax. That is, if a good or service is consumed within New Zealand, then it is within the remit of GST legislation. The Commissioner distinguishes from the hunting experience (being that consumed in New Zealand) and the taking a of a trophy itself (which, if exported correctly, is zero-rated for GST purposes).
To this end the Commissioner identifies the following elements of a hunting “experience” in New Zealand:
- Transportation;
- Accommodation and meals;
- Guiding;
- Gun hire;
- Licences and permits;
- The opportunity to kill particular breeds and quality of animals (considered to be embedded within the trophy fee itself);
- Safari Club International Point Scoring.
The Commissioner considers that the experience is not ancillary or incidental to the taking of a trophy, the hunting experience in its own right is just as much an objective as the taking of a trophy (noting that a trophy is not always taken). The experience and its component parts therefore has its own GST position and cannot be “bundled” into an overall trophy cost.
GST Interpretation - summary
It is a complicated area of tax law and you will need robust processes (and perhaps legal agreements in some cases) to comply:
The “Hunting Experience” – this is all consumed in New Zealand and subject to GST at 15%;
The trophy – The Commissioner considers that the opportunity to kill particular breeds and enjoy a quality animal is included within a trophy fee. Therefore, while the trophy may be exported (and zero-rated) a proportion of this fee is now also considered subject to 15% GST. This amount is dependent upon quality and uniqueness of the animal. The Commissioner has provided standard “safe harbour” percentages (reproduced below) to calculate the GST apportionment between zero and standard-rated.
Zero-rating of trophy
Subject to apportionment, the supply of a trophy must be zero-rated if:
- The outfitter is named as supplier for export documentation (or is entered by an agent on behalf of the outfitter);
- The supply is in the course of, or a condition of, the supply; and
- The pre-requisite timeframes are met (the trophy is exported within 28-days of the time of supply, or later if agreed by the Commissioner).
In summary, it would all seem very simple. However, commercial practice, nature of the transaction and legal relationships add significant technical complexity.
Common issues that arise include:
- Missing the GST time of supply (which can be as early as the receipt of a deposit) and applying for an extension of time;
- Putting the wrong name on the export documentation;
- Misunderstanding the nature of relationships. For example, if the taxidermist exports the trophy, can it be said that it is being done on behalf of the outfitter under an agency relationship? If not, GST zero-rating may be precluded on a technicality;
- Not realising from a GST perspective that the trophy has been already supplied in New Zealand and therefore cannot be exported by the outfitter. For example, the outfitter makes the trophy available to the hunter, who arranges for a taxidermist and the outfitter has no further input.
These scenarios, amongst others, have been well canvassed by the Commissioner.
Apportionment
The Commissioner will accept that the trophy fee can be allocated between the “Hunting Experience” (15% GST) and “Trophy Proper” (zero-rated providing all criteria are met) in accordance with the following safe-harbour percentages:
| Animal type |
% to be zero-rated |
% to be standard-rated |
|
Small animals (e.g. possums and rabbits)
|
0% |
100% |
|
Arapawa Ram, Feral Goat, Pacific Ram, Wild Boar, Chamois, Fallow
|
25% |
75% |
|
Rusa, Sika, Tahr, White tail, Elk, Sambar, Wapiti
|
50% |
50% |
|
Red deer: No SCI – up to SCI 399
|
50% |
50% |
|
Red deer: SCI 400 – 499
|
75% |
25% |
|
Red deer: Over SCI 500
|
90% |
10% |
The Commissioner acknowledges that the use of the safe-harbour percentages is optional.
Where an outfitter wishes to attribute a greater proportion of the trophy fee to the zero-rated supply, they will need to be able to satisfy the Commissioner that there approach is reasonable. The onus is on the outfitter to do so.
Our view
The Commissioner has offered certainty of position and has reduced the ability of the taxpayer to game the rules, for example the “gamer” would place a higher weighting of an overall hunting package would be applied to the trophy component (and zero-rated). Certainty has to be welcomed. However, this must be balanced with complexity; and the rules are certainly complex.
Further, we are not wholly convinced of the Commissioner’s argument that the hunting experience is consumed in New Zealand. An experience includes a collection of memories that are consumed overtime, not in a single moment and not necessarily in New Zealand. That being said, this is an interpretation of law and it does not necessarily mean you agree and/or will follow this view; however, you should certainly expect to be challenged if you deviate.
Please contact your local BDO adviser for more information.