The compulsory zero rating of land transactions between registered parties has reduced the number of situations where GST can be claimed as an input tax deduction on land purchases. However, GST can be claimed on the purchase of land where it is considered the purchase of a second hand good.

How to qualify for a second hand goods input:
  • The land needs to have one previous owner;
  • The land is in New Zealand;
  • The supply is made by an unregistered person;
  • The supply is by way of sale (rather than a gift or a lease);
  • Payment is made for the supply in the taxable period where the credit is claimed; &
  • The purchaser is registered for GST.

However, where the vendor and the purchaser are associated, the amount of the deduction is limited to the lesser of:

  • The GST component (if any) included in the original cost of the goods to the supplier;
  • 3/23 of the purchase price; or
  • 3/23 of the (GST inclusive) open market value.

The lowest amount is likely to be GST component of the original cost of the goods to the vendor. If a credit is claimed in this situation, it will be important to obtain evidence of the original cost of the land to the vendor.

As always, we are here to assist.