| Changes to GST Rules relating to Land Transactions |
| Friday, 25 February 2011 00:00 |
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From 1 April 2011 land transactions will generally be zero rated for GST. The main risk to the tax base with the old system of charging GST on land transactions was that people would set up “phoenix” schemes. Typically a phoenix scheme would involve a transaction between two related parties whereby one party would receive the refund of GST from the IRD while the other party would make no corresponding payment because it deliberately winds up before making payment. The new scheme of zero rating land transactions is designed to improve the operation of the GST system and to be as simple as possible for all involved. THE CHANGES:GST registered vendors will be required to charge GST at the rate of 0% on any supply involving land if at the time of settlement:
OPERATION:The new rules will apply to transactions with a time of supply date of 1 April 2011 or after. For transactions entered into before 1 April 2011 but with a time of supply after that date, the supplier has the option of treating the transaction under either the current rules or the new rules. There will now be an obligation for a purchaser to provide to the vendor a written statement of their GST registration status, whether or not they intend to use the land to make taxable supplies and whether or not they intend to use the land as a principal place of residence for themselves or their relatives. The vendor may then rely on that written statement to either standard rate or zero rate GST. If a statement is not received the vendor will standard-rate the transaction. This is a snapshot only of one of the changes to GST rules coming into effect on 1 April 2011. Other changes affect apportionments as to mixed use land, transactions involving nominations and the definition of ‘supplies of accommodation’. As always, be sure to obtain relevant professional advice before entering into any contract to buy and sell property. |
