GST & Change of Business Use
Master the rules for assets shifting between business and private use. Learn when you must adjust, how to use the $10,000 exemption, and how to avoid an Inland Revenue Department audit.
The 10-Second Rule
When an asset's use shifts from business to private (or vice versa), you must perform a GST apportionment. High-value items require ongoing monitoring across multiple "Adjustment Periods," but assets under **$10,000** follow a simplified "one-and-done" rule.
What Happens When Use Changes?
In a perfect world, an asset you buy for your taxable activity would be used 100% for business until the day it’s sold. In reality, use shifts. You might start using a business laptop for private gaming, or a beach house might shift from a short-term rental to a family getaway.
When this happens, New Zealand’s Change of Use rules (Sections 21–21H of the GST Act) require you to "adjust" the amount of input tax deduction you’ve claimed to reflect the actual business use. Failing to track this is a common trigger for an Inland Revenue Department audit.
The IRD now uses a cost-based hierarchy to determine how often you need to check your business use percentage. The higher the cost, the longer the "Adjustment Period" schedule.
The Asset Cost Hierarchy
1. The $10,000 "Principal Purpose" Shortcut
If you purchase an asset that costs $10,000 or less (GST exclusive), you can choose a much simpler method based on the principal purpose test.
- ✓ The Rule: If the Principal Purpose (more than 50% of the use) is business, you claim 100% of the GST upfront. If it's less than 50%, you claim 0%.
- ✓ The Benefit: Once you make this choice, you **never** have to make a change-of-use adjustment in the future for that asset.
A designer buys an $8,000 iMac. They estimate they will use it 70% for client work and 30% for personal browsing. Because it costs under $10,000 and the principal purpose is business, they claim the full 15% GST upfront. Even if their personal use increases to 60% next year, no adjustment is required.
2. When You DON'T Need to Adjust
The IRD allows for a small margin of error. You do not need to make an ongoing change-of-use adjustment if:
The total value of the adjustment is less than $1,000 (GST exclusive).
The difference between your intended use and actual use is less than 10 percentage points (unless the monetary adjustment is over $1,000).
A plumber buys a van for $40,000. He intended to use it 80% for business and claimed $4,173 in GST. At the end of the year, his logbook shows actual use was 75% (a 5% drop). Because the drop is under 10 percentage points, and the financial impact is small, no adjustment is needed.
3. The "Wash-up" Adjustment
If the use of an asset changes permanently (e.g., you decide to stop renting out a cottage and use it as a full-time residence), you can perform a "Wash-up" adjustment. This calculates the remaining GST liability or credit in one final go, ending the need for future annual adjustments.
Critical Warning: Land
The $10,000 shortcut **never** applies to land. Land always requires apportionment and a strict 10-period adjustment schedule regardless of the price. Selling land also triggers a complex final adjustment.
Frequently Asked Questions
Selling an asset counts as a "final adjustment." You must account for GST on the sale price (if business use was claimed) and perform a final wash-up to settle any outstanding input tax.
Usually, it's 12 months, ending on your balance date (e.g., 31 March). The first period must be at least 12 months long from the date you bought the asset.
Typically no. Most tools cost under $10,000, so you use the Principal Purpose rule. If they are for your trade, you claim 100% once and forget it.
More NZ GST & Tax Tools
Free professional tools designed specifically for New Zealand business owners and sole traders.
Compulsory Zero-Rating (CZR), claiming GST on fit-outs, and commercial lease rules.
Learn about land boundary changes, and input credit claims for developers.
Are relationship property transfers and spousal maintenance taxable?
Quickly add or subtract 15% GST for any NZ business transaction.