Fortune Manning Deal With GST & Services Connected With Land

A special report from Policy and Strategy of the Inland revenue was published in 2017 which provides to explain changes to the Goods and Services Tax Act 1985, recently enacted in the Taxation (Annual Rates 2016-2017, Closely Held Companies and Remedial Matters) Act 2017.

GST now applies to an expanded range of services, particularly professional services, which are closely related to land in New Zealand. These services are zero-rated where they relate to land outside New Zealand. The new rules supplement the existing “directly in connection” with land test by adding an additional test.

Under the expanded rules, GST applies to services that are supplied in connection with land in New Zealand and which are “intended to enable or assist a change in the physical condition, or ownership or other legal status” of the land. Supplies of services that are directly in connection with land outside New Zealand are already zero-rated under the current GST legislation. The new test extends the zero-rating treatment to services supplied in connection with land outside New Zealand when they are intended to enable or assist a change in the physical condition, ownership or other legal status of the land.

Under the new test, the relevant services must be intended to enable or assist a change in the physical condition, ownership or other legal status of the land or improvement. The reference to “services intended to enable or assist a change in physical condition” ensures that services that form an integral part of a process of physically changing the land, but do not do so themselves (such as engineering or architectural services), are captured.

By adding to services connected with land services which are “intended to enable or assist a change in the… ownership or other legal status of the land”, a variety of professional services (such as legal or real estate agents’ services as part of a land transaction) are expected to be included because the intended outcome is to change the legal nature of the land, even though the services do not involve any physical change or connection to the land.

This will ensure that the GST treatment stems from the location of the land as a proxy for where the services are effectively consumed (consistent with the destination principle and with international practice), rather than the location or residence status of the recipient of the services. This also better aligns the treatment of services provided to non-resident purchasers of New Zealand land so that these services will be subject to GST at 15%, consistent with similar services provided to resident purchasers.

For more information on Auckland lawyers, GST and services connected with land please go to www.fortunemanning.co.nz .