GST and land sales

In 2011 the GST Act was amended to prescribe that a supply of land between two GST registered parties was subject to a rate of 0% if the land was ton be used by the purchaser to make taxable supplies and not as a principal place of residence.

Given the change reduced the GST rate to 0% it is fair to assume it should have simplified how GST applies, i.e. there wouldn’t be any. However, in practice the change continues to cause problems both from a contractual and technical perspective. This led to Inland Revenue (IRD) issuing additional guidance in 2017. However, problems persist. Two examples are outlined below.

Under the GST Act, a purchaser is required to notify the vendor of their circumstances so that the vendor can establish whether or not to zero rate the sale. In practice, this occurs by completing Schedule 1 of the Auckland District Law Society (ADLS) Sale and Purchase (S&P) agreement. However, there are instances where the schedule is not completed at all, in which case there is no ‘agreement’ between the parties regarding how GST applies.

If a GST registered purchaser does not complete ….