GST: Directors and board members providing services through a personal services company

If directors provide their services through a personal services company (“PSC”) will the PSC be able to register for GST? As opposed to a director who is unable to register, when providing those services as a natural person?

Earlier this year, Inland Revenue issued public rulings BR Pub 23/01-03 (22 February 2023). At the time, the IoD published this information about those rulings.

In short, the rulings provided that a director is not able to register for GST, unless you’re carrying on any other form of taxable activity.  

Inland Revenue has now released further draft guidance which is open for comment until 6 July 2023. This may impact its earlier operational position (OP23/01), which was intended to focus on natural persons. This draft guidance specifically looks at the GST treatment of directors’ fees for directors operating through PSC’s.

The Commissioner originally concluded that a professional director (a person holding multiple directorships or board memberships) without any other associated taxable activity (such as a legal or accounting or consulting practice) does not carry on a taxable activity just by virtue of holding multiple offices. Therefore they were unable to register for GST, and should de-register.

Questions were then raised about the applicability of these rulings to directors who provide “director services” through a PSC.

The attached draft guidance is Inland Revenue’s response on this issue. It concludes that in most circumstances, although there are grey areas, a PSC will be able to be GST registered. 

As noted above, this draft position is open for comment until 6 July 2023.

Please see an accompanying article by KPMG setting out further details of Inland Revenue’s earlier rulings, the effect of the latest draft guidance issued, and what to do if you think you may have got something wrong. 

Please contact the Governance Leadership Centre of the IoD if you have any queries around the latest draft guidance, or alternately provide your comments direct to IR at Public.Consultation@ird.govt.nz before the deadline of 6 July 2023.