Articles by Matthew Gilligan
On 1 April 2011 new GST rules came into force. Perhaps the change of most significance to many of our clients are the new rules around zero rating of land transactions. These rules were brought in to address concerns the Government had about GST leakage where land was being sold from one GST registered party to another, with the GST registered purchaser making a GST claim that was funded by the IRD, only for the GST registered vendor to turn out to be insolvent meaning the IRD were not able to collect the GST from them.
As a result new rules now apply to transactions involving the supply of land between GST registered parties. Put simply, any supply which involves land is zero rated for GST purposes which means that GST applies at a rate of 0%. A registered purchaser does not pay nor claim GST and the registered vendor does not return it. This prevents the IRD from ending up in a situation where they are out of pocket.
If you are a vendor or purchaser of land you need to be very careful. Consider the following situation from a purchaser's perspective:
You are buying a property for trading purposes. You are an experienced trader and have a GST registered Trading Trust through which you conduct your trading activity. You generally buy properties for around circa $230,000 and are accustomed to claiming GST in respect of these purchases which then means the net cost to you after your GST claim of $30,000 is $200,000.
There is an addendum that has been added to the standard sale and purchase agreement but we are aware of instances where vendors are not filling this out or it is being filled out when it isn't required to be.
The result of all of this is that you should act with the upmost caution if you are a GST registered purchaser or vendor of land. Please contact us at GRA for specific advice on your transactions as required. Make sure you do this before contracts go unconditional so that you have certainty around the GST treatment before you are committed.
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