With effect from 1 April 2011, there will be compulsory zero-rating of transactions between GST registered parties that involve land.
If the purchaser named in the Sale and Purchase Agreement does not intend to own the land themselves but nominates another entity, then the purchaser may make the statement in 4 on behalf of the nominee.
The key features are:
1. GST registered vendors will be required to charge GST at 0% on any supply to a registered purchaser involving land or in which land is a component if at the time of settlement: (a) the purchaser intends to use the land for making taxable supplies; and (b) the land is not intended to be used as the principal place of residence of the purchaser or an associate (if it is then GST applies).
2. If land is only part of the component of a larger supply, the whole supply is zero-rated.
3. The definition of "Land" in the GST Act has been expanded and "Land" includes anything of a permanent nature situated on the ground, such as buildings and the land can be freehold or leasehold. Leases are included other than residential leases, periodic commercial leases and commercial leases that have 25% or more of the consideration payable in advance. The right to acquire land and profit a prendre (e.g. mining rights) are also included.
4. The purchaser is required by law to provide at or before settlement, a written statement to the vendor whether at the date of settlement: (a) they are or expect to be GST registered; and (b) they intend to use the land for making taxable supplies; and (c) they do not intend to use the land as a principal place of residence for them or a person associated with them.
5. If the purchaser named in the Sale and Purchase Agreement does not intend to own the land themselves but nominates another entity, then the purchaser may make the statement in 4 above on behalf of the nominee.
6. Once a written statement is made by the purchaser, the vendor is not required to make further enquiries.
7. If the vendor is satisfied that the purchaser's written statement complies with the requirements for zero-rating, the vendor may zero-rate the transaction, otherwise the vendor will apply GST at the standard rate.
8. If the purchaser refuses or does not supply the written statement, the vendor should apply GST at the standard rate.
9. If subsequent to settlement IRD find that the supply should have been standard rated instead of zero-rated, then the purchaser will have to account for GST.
- This e-mail address is being protected from spambots. You need JavaScript enabled to view it is a Partner with Rodgers-Law in Dunedin and advises small and medium sized businesses on all aspects of commercial law.
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