Zero Rating of Transactions Involving Land

Posted: 28th March 2011

The Taxation (GST & Remedial Matters) Act 2010 included some significant changes to the way the GST rules apply to transactions where the supply includes land.

 Where any transaction involves land, the GST registered supplier may be required to zero-rate the supply if it is made to another registered person and the purchaser acquires the goods with the intention of using them for making taxable supplies (not if the land is intended to be used as a place of residence for the purchaser).

 The changes will apply from 1 April 2011.  An interest in land is defined widely, however, it does not extend to cover a commercial lease.  Commercial leases will continue to be subject to GST. 

 Before a supplier can zero rate a transaction involving land, a written statement is required to be provided by the purchase setting out that they are or will be a registered person, that they are acquiring the goods with the intention of using them for making taxable supplies.  In most cases, this written statement will be included in the Sale and Purchase Agreement (much like the previous "going concern" clause) entered into by the parties but it is not necessary for it to be so included.

 In situations where the transactions was intended to be zero-rated but subsequently the purchaser did not satisfy the requirements, the GST obligation will fall on the purchaser to account for the GST on the transaction, whereby the purchaser is deemed to make a supply of the land.

 These rules are designed to simplify GST for land transactions, but it is important that the requirements for zero-rating are met, in particular for the purchaser as the GST liability falls on them rather than the vendor should zero-rating not apply. 

If you are buying or selling land and you are unsure of your GST obligations, we suggest you contact your tax advisor or James McQuaid on 09 308 4058 or james.mcquaid@tbag.co.nz prior to the transaction being completed.