Edmonds Judd

Fair Trading

GST and land transactions

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

 

Business briefs

Business Ethics, Fair Trading, Resource Management Reform, Tourism Risk Management, Workplace Regulation
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Misleading and deceptive conduct

The Commerce Commission has filed criminal charges against HelloFresh New Zealand, alleging that the meal-kit delivery company misled former customers when reactivating cancelled subscriptions.

 

The charges relate to conduct where customers were allegedly offered discount vouchers via cold calls without being clearly informed that accepting the voucher would reactivate their subscriptions and result in charges to their account.

 

Commerce Commission Deputy Chair, Anne Callinan, stated that the alleged conduct may have breached the Fair Trading Act 1986, which prohibits misleading and deceptive practices. Given the prevalent use of subscription-based services, the Commerce Commission is focused on tackling ‘subscription traps,’ where consumers may be unwittingly signed up for ongoing service contracts.

 

While the allegations have yet to be tested in court, the case serves as a reminder for businesses to ensure their sales practices are clear and transparent, and for consumers to remain vigilant.

 

Misleading or deceptive conduct, even if unintentional, can result in significant penalties and reputational damage. The Commerce Commission has signalled that enforcing fair trading laws in the online subscription space is a priority.

 

Whakaari Management Limited conviction overturned

In previous editions of Commercial eSpeaking, we have reported on the conviction and sentencing of Whakaari Management Limited (WML). The District Court convicted WML under section 37 of the Health and Safety at Work Act 2015 for failing to ensure the safety of tourists visiting Whakaari/White Island following its December 2019 eruption that killed 22 people and severely injured 25 more.

 

Section 37 imposes a duty on those who manage or control a workplace to ensure, so far as is reasonably practicable, that their workplace is without risks to the health and safety of any person.

 

The High Court has since overturned WML’s conviction.[1] Central to this decision was the interpretation of ‘management or control of the workplace.’ WML’s role was limited to granting access to Whakaari – it did not actively direct or oversee activities on the island. This lack of operational control meant WML did not manage or control the workplace in the sense contemplated by section 37.

 

The High Court found that the risk of people being on Whakaari during an eruption stemmed from the work activity controlled by the tour operators, not WML’s business operations. WML had imposed health and safety obligations on the tour operators and relied on regulatory guidance in respect of the risk. As a result, the High Court was satisfied that, even if section 37 had been triggered, WML had taken all reasonable steps to discharge such a duty.

 

Although this decision may be a relief to many business owners, we urge continued caution. Neglecting to exercise power or control does not exempt a business from its duty under section 37. A practical and fact-specific exercise should be undertaken to assess whether the business can actively control or manage the workplace. Businesses must continue to identify circumstances where a duty may be owed and ensure appropriate steps are taken to discharge this.

 

The Resource Management Act 1991 to be replaced with two new acts

The government recently announced that the Resource Management Act 1991 (RMA) will be replaced by two new acts: the Planning Act and the Natural Environment Act. This is the final stage of the government’s three-phase resource management reform. It follows the repeal of the Labour government’s RMA replacement legislation, amendments to the RMA and implementation of the Fast-Track Approvals Act 2024.

 

The dual act approach aims to minimise duplication between laws and regulations, and to provide a more concise framework for managing the effects on the natural environment. The Planning Act will focus on land-use planning and regulation, while the Natural Environment Act will address the use, protection and enhancement of the natural environment.

 

Key proposed changes include:

  • Nationally standardised land use zones: the new resource management system will have one combined plan per region. Each plan will include environmental, spatial planning and planning chapters
  • Resource consent: resource consents will still be required. However, with the new nationally standardised land use zones, there will be more permitted activities, leading to fewer resource consents being required, and
  • Compliance and enforcement: a national compliance and enforcement regulator will be established to ensure consistency and reduce variability in compliance and enforcement activities. This will be done in a separate legislative process.

 

The government has indicated that it intends to introduce the new legislation to Parliament by the end of 2025, put it before the select committee in 2026, and pass it into law before the general election at the end of 2026.

[1]  Whakaari Management Ltd v WorkSafe New Zealand [2025] NZHC 288.

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