Latest News [index] New GST rules applying to the sale of land
The GST rules surrounding the sale of land will change from 1 April 2011 so that sales of land (including developed land) by GST-registered vendors that settle on are after that dated can be zero-rated for GST purposes, that is no GST is charged by the vendor and no GST can be claimed back by the purchaser. The new rules apply if:
- the purchaser is GST-registered;
- the purchaser acquires the land with the intention of making taxable supplies; and
- the land is not intended to be used as a principal residence by the purchaser or a relative of the purchaser.
If any of these conditions are not satisfied at the time of settlement, the
sale of land will be subject to GST.
Where land includes a principal place of residence as part of a larger property
the vendor is required to to treat the sale of the residence and the sale of
the other property as two sales for GST purposes with only the sale of teh
balance of the land being subject to the zero-rating rules.
New rules governing the new zero-rating provisions require the purchaser to
provide a written statement to the vendor, at or before settlement confirming
whether, at the date of settlement:
- the purchaser is or expects to be GST-registered at settlement;
- the purchaser is acquiring the land with the intention of using it for making taxable supplies;
- the purchaser does not intend to use the land as a principal place of residence for the purchaser or a relative
This information must be provided in writing.
If the zero-rating conditions are not satisfied by the statement, the vendor
must make the sale subject to GST.
There are also provisions that allow a vendor to apply GST where the vendor does not believe the information supplied by the purchaser.
A vendor also has record keeping obligations under the new zero-rating rules that require the vendor to retain the purchaser's name, address, GST number, the description of the land and the price paid for it.
Extreme care will be required when entering into new contacts for sale of land to ensure that all parties are clear on their respective GST obligations and liabilities and most importantly to ensure that GST can be recovered where zero-rating cannot be applied.
If you have any questions about zero-rating the sale of land please contact a member of the Ayres Legal team.