Simplified Conditions for Deeming Output Tax on Gifts
On 1 October 2012, IRAS released a plethora of changes and updates on GST. The changes are largely to take into account legislative changes. One noteworthy change which has the biggest impact on businesses relates to GST & Gifts. And it is GOOD NEWS!
Prior to 1 October 2012
When goods are given away for free (e.g. gifts to customers such as mooncakes and hampers), you are treated as making a supply to the recipient of the gift. As the gift is given for free, you need not charge GST to the recipient. While you are entitled to claim the input tax incurred (provided it is not a “blocked expense”), you are required to account for output tax based on the open market value of the goods if:
1. The cost of the gift is $200 or more; or
2. It forms a series of gifts (a series of gifts refers to 3 or more gifts given to the same person within a period of 3 months).
This means that if you choose to forgo the input tax claims, you are still required to deem the output tax if the cost of the gift is $200 or more, or if it forms a series of gifts. Additionally, it can be onerous tracking whether the gifts form a series of gifts.
To circumvent the above practical problems, we have seen GST-registered businesses claiming and deeming output tax on gifts regardless of value, so as to save time and effort in tracking of gifts.
From 1 October 2012
With effect from 1 Oct 2012, to ease compliance for businesses, GST-registered businesses are only required to deem output tax on gifts costing $200 or more and where input tax on the gift had been claimed.
In other words, IRAS has:
1. Removed the series of gifts condition.
2. Given you the option to forgo the input tax claim so that deeming of output tax is no longer required when the gift is subsequently given away for free.
We applaud the IRAS for this much awaited and welcomed change, which should significantly reduce the compliance burden for GST-registered businesses.