Edmonds Judd

Business & Investment

GST and land transactions

Business & Investment, Commercial, Employment, Estate, Fair Trading, Financial Services Regulation, First Job
0

Understanding your tax obligations

 

If you are buying or selling land (with or without a home on the section), it is important to have an accurate understanding about your tax obligations and whether GST will be applicable to your transaction.

GST is not typically applicable in residential sale and purchase transactions but, if you are GST-registered and the sale is part of your taxable activity, GST may apply.

Potential GST outcomes

If the buyer and seller are both GST-registered, the transfer of land is part of a taxable activity (for example: farming, or a commercial building), and the property is not used as a private residence, the transfers are typically zero-rated for GST (meaning GST is charged on the transaction at a rate of 0%).

If the buyer is GST-registered and the seller is not GST-registered, and the buyer intends to use the land as part of a taxable activity, the buyer may be able to claim GST.

If the seller is GST-registered (and claimed GST) and sells the land to a buyer who is not GST-registered, or does not intend to use the land as part of a taxable activity, the seller may need to return GST to Inland Revenue following the sale.

There can be additional complications where some part of the property is used for private purposes, and some part is used for a taxable activity. In this instance, some of the purchase price may be subject to GST, but some part of it may not.

Warranty as to GST status

The standard sale and purchase of real estate agreement contains a statement on the front page – ‘the vendor is registered under the GST Act in respect of this transaction and/or will be so registered at settlement.’

If you are GST-registered and the sale is a taxable supply, you will need to complete schedule one in the agreement. As a seller, you will need to tick either ‘yes’ or ‘no’ to this statement. You must provide a warranty that the answer you provide is correct and will remain correct as at settlement. If it later transpires that your answer was incorrect, you have breached a warranty and could be liable to the buyer for any losses they have suffered because of this breach. For example, if you provided a warranty that you were not GST-registered in relation to the transaction, the buyer may presume that they may claim GST from Inland Revenue following settlement if they will be GST-registered and intend to use the property for taxable supply. If you were, in fact, GST-registered, the buyer will not be able to do that, therefore you may be required to reimburse 15% of the purchase price to the buyer due to your breach of warranty.

If you are the buyer, the agreement contemplates your GST status potentially changing throughout the transaction. For example, you may initially sign the agreement in your personal name (and you are not GST-registered) and later you nominate a GST-registered company to complete the purchase.

The purchase price will be expressed as either ‘plus GST (if any)’ or ‘inclusive of GST (if any),’ which dictates how much you need to pay on settlement, depending on your GST status. It should be clear to all parties whether the buyer will be GST-registered on settlement date, as this can have GST implications for both parties.

Purchase price allocation

If GST is applicable to the transaction, you should consider whether you should agree with the other party on a purchase price allocation; completing a purchase price allocation is highly recommended in some situations since GST may be claimable on some items, but not others.

If the buyer and seller agree on a purchase price allocation in the agreement, this allocation must be used by both the seller and buyer when completing their respective tax returns. This provides certainty to both parties. The purchase price allocation can therefore have tax consequences for both buyer and seller, so it is important to get accounting advice on this allocation before signing the agreement.

Where to from here?

If GST is (or may be) applicable to your transaction, it is important that you get legal and accounting advice before signing the agreement. A mistake in the agreement cannot always be fixed by your professional advisers after signing; it could result in an unexpected GST bill, which can be very costly. We and your accountant will work together to ensure that the sale and purchase agreement accurately reflects your GST position and that you fully understand any potential tax consequences before signing the agreement.

 

 

 

 

[1] Purchase price allocation is where the price is allocated between the land and any buildings, and other fixtures, fittings, chattels or improvements.

DISCLAIMER: All the information published in Property Speaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Property Speaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

 

Budget 2025

Budget & Taxation, Business & Investment, Economy & Finance, Politics & Government, Public Policy
0

‘Fiscally conservative’?

On 22 May, the Minister of Finance, the Hon Nicola Willis, presented what she had termed a ‘No BS Budget.’ It is officially entitled ‘The Growth Budget.’

 

Described by the minister as being ‘fiscally conservative,’ public expectations were not high for a lolly scramble of funding for new initiatives.

 

In the weeks leading up to the Budget, the minister drip-fed announcements of about $1.9 billion of new spending and, amongst others, a significant ‘restructure’ to the pay equity regime. As a result,

it was anticipated that on Budget Day, there would be what the minister has called ‘reprioritising of spending.’

 

Over the past few years, New Zealand has experienced an extended period of high inflation, high interest rates and low growth. With this 2025 Budget and despite worldwide geopolitical and geoeconomic tensions, the minister has indicated New Zealand’s fiscal outlook will gradually recover, despite an initial period of retraction. The government now expects what the minister has called ‘a modest surplus’ by 2028–29.

 

Good news for business

Called Investment Boost, businesses can now write off 20% of the value of productive new assets such as machinery, tools and equipment from that year’s taxable income – in addition to regular depreciation rates. By encouraging investment, the government expects a 1% increase in GDP and wages by 1.5% over the next 20 years, with half of these gains being in the next five years.

 

Greeted positively by the business sector, these new rules came into force on 22 May, passed under urgency after the Budget was presented.

 

Intended to attract foreign investment to this country, the government has created a new agency, Invest New Zealand. The agency’s objective is to create a vibrant investment market in this country. Initially collaborating with New Zealand Trade and Enterprise, Invest New Zealand has a clear direction to attract international capital, ideas and expertise in order to lift wages and grow the country’s economy.

 

Additionally, the government says it will be easier for startups to compete for talent by changing how employee share schemes are taxed.

 

Supporting New Zealand’s strong position in the film industry, screen production rebates will be renewed.

 

Government cuts contributions to KiwiSaver

The government’s contribution to KiwiSaver accounts is to be halved. Until now, KiwiSaver account holders have received $521 a year from the government; this is to be cut to $260.72.

 

In addition, the threshold for the minimum ‘default’ rate of employee and matching employer KiwiSaver contributions is to be increased from 3% to 4%; this is to be a two-step process over the next three years. This will be optional; KiwiSaver account holders may opt to stay at 3%. With many KiwiSaver balances ‘modest,’ the minister says this change should encourage New Zealanders to save more for their retirement.

 

More positive news for New Zealand’s younger taxpayers is that 16 and 17-year-olds will start to receive government contributions to their KiwiSaver from July (currently there is no contribution). Requirements for employers to match these deposits will start in 2026.

 

Benefits

Jobseeker and emergency benefits to be means tested: Not anticipated by pundits, 18 and 19-year-olds will have their Jobseeker and emergency benefits tested against their parents’ incomes, although there are some exemptions. The threshold against which these benefits will be measured is yet to be decided.

 

Medicine prescriptions: The length of a prescription is to be extended from three months to 12 months.

 

Working for Families: Targeted at low to middle-income families with children, the family income threshold and abatement rate will increase by an average of $14/fortnight. The additional cost for this will be funded by extending the income testing for the Best Start tax credit to include the first year after having a child, as well as the current situation of means testing for the second and third years. Payments will cease when a family’s income reaches $97,000 a year.

 

SuperGold card: A rise in the income threshold will allow a rates rebate for 66,000 additional lower income households with a SuperGold cardholder.

 

Disability Support Allowance: $760 million has been allocated to support the disability sector. The government has called this a ‘seismic shift’ in funding.

 

More . . .

Already announced and included in Thursday’s Budget is more funding for health, education, law and order, and other frontline public services. This includes:

  • Significant additional funding for the education sector for children with additional learning needs, schools/early childhood education and tertiary operational grants; additional help with maths skills; and lifting school attendance,
  • Nelson Hospital is to undergo a much-publicised need for redevelopment, together with Wellington’s emergency department. Auckland hospitals are to be upgraded,
  • After decades of underinvestment, the country’s rail will receive a $460 million upgrade to the metro and regional rail networks, and
  • The Defence Force will receive significantly more investment to boost New Zealand’s capabilities for the army, navy and air force, and in cyberspace.

 

To read the Budget in more detail, click here for the minister’s Budget speech.

 

If you would like to discuss the implications of the government’s business incentives, please don’t hesitate to contact us.

 

Major changes ahead for New Zealand’s financial landscape.

DISCLAIMER: All the information published in Property Speaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Property Speaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650