GST - special transactions

You may have encountered some transactions where you weren’t sure about the GST treatment. If you haven’t (yet), you may in the future.​

The GST transactions and our explanations outlined further below are for you to recognise that these may require additional attention. They are the most common situations we see, but by no means is this a comprehensive list.​

GST can be a minefield so if you’re unsure about any aspect, please contact your accountant and legal advisor.​

Zero-rated supplies are still subject to GST, but at a rate of 0%, not 15%. This is different to exempt supplies – they are not subject to GST at all.​

The most common reasons for having zero-rated supplies are the importation and exportation of goods.​

There are three ways of selling a business:​

All sale and purchase agreements need to be carefully worded. Before signing anything we strongly recommend you have the agreement reviewed by a lawyer and accountant. If certain aspects are not addressed or unclear, the repercussions could be disastrous.​

* A going concern is where the business’ normal operations continue after the sale. The customer may not know the business has changed hands.​

If a farmer sells his farm, including house, land, sheds, livestock, plant and equipment. This is a going concern and can be zero-rated if the purchaser is registered for GST. He’s sold a farming operation.​

If he only sold the land and house but kept everything else, the farming business has not been sold. It’s just the sale of assets – these may be subject to GST (see our section on land sales below).​

An example of this could be a New Zealand newspaper using a third-party publishing company which is based overseas. The newspaper cannot claim GST on its payments to the reporter.​

Exempt supplies are not subject to GST. They’re not zero-rated, GST just doesn’t apply. A slightly cynical way of looking at it, is that as the customer you don’t actually receive any goods or services. Examples of these are:​

We assume that businesses supplying remote services such as digital content, apps, software, subscriptions, and website design, receive more than $60,000 from sales to New Zealand customers. They are therefore legally required to register for GST in New Zealand and charge GST.​

We are therefore of the view that, in general, GST can be claimed on these types of expenses. Our provisos are that the less well-known and/or smaller providers may not be registered (so you cannot claim GST), and that you should obtain supporting documentation for the larger transactions (ie, those which aren’t subscription services).​

If a GST-registered organisation receives a donation with no strings attached, it is not subject to GST. By “no strings attached”, we mean that the person donating has done so voluntarily and expects nothing in return.​

However, if it sells goods (fund-raising activities for example) or performs services (this could be a tour), GST must be applied and declared with Inland Revenue.​

Businesses donating to other organisations cannot claim GST on this expense.​

Be afraid. Be very afraid.​

Ask any tax specialist and they’ll have a horror story in their ‘land tax gone bad’ file. We’ve seen more than our fair share of disasters and usually the conversation starts with, “I’ve just signed an unconditional contract and the real estate agent/best friend/someone I met in the pub who does this all the time [delete as applicable] tells me that everything’s fine”.​

No.​

No disrespect here to real estate agents – land tax is an extremely complicated area and even accountants get this wrong from time to time. One of the key issues is that what might work for one client does not work for another because of different scenarios.​

Inland Revenue has a good “yes/no” flow diagram which is extremely helpful. They have a disclaimer though, in the small print:​

We cannot emphasise this enough – if you’re signing a sale and purchase agreement, take 10 seconds to consider this – should I just run this past my accountant?  If it’s anything but buying the family home*, the answer is always yes. The cost of getting this wrong can be HUGE.​

* and even then, we still suggest you seek professional advice​

Use our GST calculator for business owners to see the GST inclusive and exclusive price. ​

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