GST Traps - Real Estate

Published: 25th September 2017

Author: Anonymous

Published in: TrialBalance | #60

Vendors should always contract on “+ GST” basis for safety
If compulsory zero rating (CZR) applies, the vendor needs to make a final check to ensure purchaser is GST registered. Ask for the GST registration number.
If client assigns a lease as part of the sale of a business, CZR applies. A lease is an interest in land.
Principal place of residence exclusion only applies to individuals. Thus if a trust is buying a property and it is going to be occupied by beneficiaries, CZR still applies if both parties are registered for GST and the other conditions are met. Similarly, the principal place of residence exclusion does not apply to a company.
Costs relating directly to the sale or purchase of property in New Zealand by an overseas resident are subject to GST (legal, Real Estate, advertising).
Preparation of annual accounts and tax returns and legal advice about tax issues at the time of purchase are not directly related to the purchase so GST does not have to be charged to the overseas resident.
If the supply is incorrectly zero rated for CZR because the purchaser incorrectly stated they were registered for GST at settlement, the purchaser incurs the GST liability.
Purchasers should remember real estate valuations are usually quoted GST inclusive.

Exposure draft PUB00255 has just been released on this subject. It is an easy read and contains a flow chart and some useful examples. We attach a link to the IRD website.