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IRD shifts approach on GST applied to land

Inland Revenue has signalled a further shift in its approach on GST when applied to land sales.

By Rob Hosking

It is aiming its guns at "phoenix" property companies which claim GST rebate for inputs but which end up "at the bottom of the harbour" by the time the department comes to collect at the other end of the GST process.

In November, Inland Revenue proposed a "domestic reverse charge" by which the obligation to account for GST on land and other transactions on assets worth more than $50 million is put onto the buyer rather than the vendor.

Submissions on that closed just before Christmas and Inland Revenue has now gone back to submitters with further refinements to the proposals.

These include a wider definition of land and a proposal that Inland Revenue have greater powers to "deem" people GST registered.

The New Zealand Institute of Chartered Accountants (NZICA) has broadly endorsed the new proposals although it says the extension of the definition of land may not be needed.

The new proposals extend the reverse charge: they still zero rate the vendor and pick up the GST from the purchaser.

It will apply to all GST registered persons involved in selling land or transactions which involve a mixed supply of land and another component.

Vendors will have to establish that the purchaser is GST registered before a transaction can be zero-rated: if it is not, and the purchase goes ahead, Inland Revenue will have the power to deem the purchaser GST registered and to claim the GST off them.

The NZICA says this may not be necessary and that there is a risk of "legislative overshoot" - it could potentially catch leases, which are not part of the issue Inland Revenue, is trying to address.

To protect purchasers from unscrupulous vendors who may represent themselves as being not registered for GST, the NZICA suggests some way for recipients to be able to check wither a vendor is GST registered, and also a provision allowing the department to pursue the vendor if a misrepresentation has been made.

The NZICA also suggests including a "checkbox" on GST returns to record if the taxpayer had made a zero-rated land transaction.

"This is suggested with the thought that Inland Revenue may be interested in undertaking audit activities to know who is undertaking zero-rated supplies of land."


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