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Government to tidy up GST on commercial land deals

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  • Government to tidy up GST on commercial land deals

    Government to tidy up GST on commercial land deals

    NZPA and NBR Staff | Friday August 6, 2010 - 08:41am
    No goods and services tax (GST) will be payable on commercial land transactions between GST-registered parties from April 1 next year if a bill introduced into Parliament this week goes through.
    The Taxation (GST&Remedial Matters) Bill is designed to prevent so-called "phoenix" fraud schemes, Revenue Minister Peter Dunne said.
    "To prevent this practice, the bill will require GST-registered vendors to charge GST at a zero rate on most transactions involving land or in which land is a component if the purchaser is also GST-registered."
    The fraud schemes involved Inland Revenue refunding GST to the purchaser with no corresponding payment made by the vendor because it was wound up before paying.
    The Government, following a 2009 consultation paper, had signalled its intention to close the loophole in Budget 2010, Mr Dunne said.
    A transaction between a registered supplier and a non-registered purchaser remains subject to the existing rules.
    Deloitte tax partner Allan Bullot said the move to zero rate commercial land transactions between GST-registered parties did not apply to family homes.
    A private consumer buying a house and land package from a developer will still pay GST.
    "This is a bill that will change the way GST is treated on commercial land by introducing a requirement to zero rate most of these transactions.
    "It means they don't have to pay GST," he said.
    The phoenix fraud scheme had been a major issue for the Government for some time. In effect, the purchaser was claiming the GST as a refund, he said.
    Already a zero rating applied when businesses were sold as going concerns. This move effectively extended that to land transactions between businesses.
    "I think it is a very good move," Mr Bullot said.
    He said for most farmers selling a farm GST would not be an issue provided they went through certain administrative steps.
    This move would also potentially decrease the amount of security that some holders of mortgages would need.
    The bill said that a basic principle of the GST is that transactions between businesses should be GST-neutral. The goal was not always achieved, particularly in transactions involving the supply of significant assets such as land.
    Mr Dunne said other measures in the bill would make it easier for taxpayers to understand their GST obligations and reduce compliance costs
    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx