BDO Eyes on Tax: Buying or selling property? Practical GST guidance for NZ businesses

GST on land is complex; getting it wrong can be costly. Curious how GST rules might impact your next property deal? Business journalist Madison Malone sat down with BDO Tax Partner, Mark Lodder, and Tax Associate, James Peck, to unpack GST on land and property in New Zealand. Watch their conversation and read their key tips below. 

When does GST apply to land and property transactions?

If you’re selling or buying land, the first step is to check if you (and the other party) are GST registered.  There are typically three scenarios:

1. If you and the other party are both GST registered, then GST is usually charged at 0% provided that IR’s zero-rating conditions are met (learn more here).
2. If the seller only is registered, then generally the standard 15% GST rate applies. 
3. If the buyer is not registered, then GST is out of scope, but the buyer (if GST registered) may be able to claim a second-hand goods input deduction (learn more here).

Common GST mistakes in land and property sales

Here are some issues we commonly see in practice – and what to watch for before you sign or settle.

• Zero-rating, when it shouldn’t have been: For example, the transaction was treated as a zero-rated supply, however the purchaser, while GST registered, did not acquire the property to make taxable supplies. 
• Second-hand goods claims: Inland Revenue may deny a second-hand goods input deduction if the seller should have been registered but wasn’t. Confirming GST status early can help protect your cash flow.
• Changing use: If you buy land GST-inclusive and later register for GST (for example, by starting an Airbnb), the GST treatment can change, sometimes to your disadvantage.
• Airbnb and short-term lets: If your short-term accommodation income exceeds $60,000 in a 12-month period, you generally need to register for GST. That can also affect the GST treatment when you sell, so it’s worth getting advice early.
• Contractual problems: The contract references to GST inclusive or is silent, when you really wanted it to be GST exclusive. 

How do the new GST rules affect subdivisions and changes of use?

It’s important to understand when changes in use or development activity can pull you into the GST rules, and when they may not.

• Principal purpose test: Since April 2023, if your main reason for owning the property wasn’t business (i.e. a family bach), the GST taxable activity rules may not apply, even if you cross the $60,000 threshold.
• Subdividing land: Even a simple subdivision can trigger GST registration if the activity is regular. There is no "rule of thumb", but the more work and the more sections that are created, the greater the risk GST registration is required. 

Before you sign anything, confirm whether both parties are GST registered and whether zero-rating should apply. Keep clear records of how the land or property is used over time and get advice before you subdivide or change the property’s use. Small details can make a big difference to the GST outcome.

How BDO can help

GST on land can be easy to miss until it becomes expensive. Your local BDO adviser can help you confirm the right GST treatment early, sense-check your agreements, and avoid common traps so you can move forward with confidence.

Reach out to your local BDO adviser or explore our full range of tax services.

Watch more insights in our Eyes on Tax video series, covering topics including tax residency, expanding your business overseas and trustee tax.