GST treatment of land sales and purchases

Errors in accounting for GST on property transactions are very common, and often very large. Common examples include incorrectly recognising GST on zero-rated transactions, and not claiming GST on property acquired from non-registered persons.

In general, GST should be returned on all land sales and claimed on all land purchases unless the property is used solely for making exempt supplies (e.g. residential accommodation) or the transaction is zero-rated (i.e. charged with GST at 0%).

Compulsory zero-rating generally applies to transactions involving land between GST registered persons, provided that the purchaser intends using the land to make taxable supplies. Where the transaction is zero-rated, no GST would be added to the sale price, no GST should be returned by the vendor, and no GST should be claimed by the purchaser. However, the purchaser may be required to account for GST if the property will be partly used for making exempt supplies.

The solicitor's settlement statement should specifically state whether the transaction has been zero-rated. The solicitor may produce a tax invoice on behalf the vendor showing zero GST. The sale and purchase agreement should also include certain information regarding GST registration and intended usage.

The supply of residential accommodation in a dwelling is an exempt supply for GST purposes. As a result, GST should not generally be claimed on a property acquired solely for the purpose of providing residential accommodation. Similarly, GST should not generally be returned on the sale of a property that has been exclusively used for the supply of residential accommodation.

Settlement statements for the sale of residential property will often make no mention of GST. However, this does not necessarily mean that GST should not be claimed or returned on the transaction. For example, if the vendor is selling a vacant section, a property acquired for resale, or a property acquired for making taxable supplies, GST would generally apply.

A registered person could also claim a second hand goods input tax credit on a residential property acquired from a non-registered person, provided that the property will be used to make taxable supplies. For example, if a local authority acquired a residential property for roading purposes or reserves, GST should generally be claimed. However, as GST is not charged on the transaction, it is reasonably common for these input tax deductions to be missed.

A second hand goods input tax credit could also be claimed on an exempt supply of land from a registered person, if the land will be used for making taxable supplies. However, an input tax credit cannot be claimed on zero-rated transactions, or on properties acquired for the purpose of providing residential accommodation.

Where the property will be used for making both taxable and exempt supplies, the input tax deduction should generally be based on the percentage of taxable supplies.

This document is intended only as a general guide, and should not be used or relied upon as a substitute for specific professional advice. No liability is accepted for loss or damage incurred by persons who rely on this document.

Page last updated: 19 February 2019