Quick Summary
The 'wash-up rule' for GST adjustments in New Zealand is a mechanism used to finalise the GST treatment of an asset when it reaches the end of its adjustment periods or before its final disposal. It ensures that the total GST claimed or returned over the asset's life accurately reflects its overall taxable use.
Details
The Wash-Up Rule Explained
The 'wash-up rule' is an important part of the GST adjustment framework in New Zealand, particularly for long-life assets that have been subject to ongoing use adjustments.
- Purpose: Its primary aim is to ensure that, over the entire period an asset is held and used, the total GST claimed or returned by a business accurately matches the asset's actual taxable use.
- When it Applies: The wash-up rule typically comes into play either:
- At the end of the specified adjustment review periods for an asset.
- Just before a final adjustment is made upon the disposal of an asset.
- How it Works: It involves a final calculation that takes into account all previous adjustments made. This reconciles the total input tax credit claimed over the asset's life against its actual taxable use, leading to a final GST adjustment (either an amount payable to the IRD or refundable to the business).
- Relationship to Disposal: It's often closely linked to the 'final adjustment on disposal' of an asset used in a taxable activity.
Source: GST guide (IR375)