GST on Property Sales NZ

Property transactions in New Zealand can attract GST, and the rules are among the most complex in our tax system. Whether you are selling a commercial building, developing land, transferring farmland, or disposing of a family home, understanding when GST applies to property sales is crucial. Unexpected tax bills can run into hundreds of thousands of dollars.

This guide covers GST on land and property sales, including compulsory zero rating, going concern, and the differences between residential and commercial property. Figures are working papers. GSTCalc.nz is not Inland Revenue. Ads may fund this free site. This is not tax advice.

When GST applies to property

GST applies to a property sale when all three conditions are met:

Family section and backyard subdivision questions sit in subdivision of the family section NZ. Land tests in detail: zero rating of land transactions NZ.

Compulsory zero rating rules

When both parties to a property transaction are GST registered and the buyer will use the property for taxable purposes, the sale must be zero rated (charged at 0% GST).

Why compulsory zero rating was introduced

The compulsory zero rating rules were introduced on 1 April 2011 to stop a type of GST fraud called phoenix fraud and to remove the cash flow strain buyers faced when paying 15% GST on large property purchases.

The Taxation (GST and Remedial Matters) Act 2010 inserted section 11(1)(mb) into the Goods and Services Tax Act 1985. Before the change, a common fraud involved buyers claiming GST refunds on property purchases while the vendor wound up their business without paying the matching output tax to Inland Revenue. Inland Revenue refunded GST it never received. Zero rating largely removed this type of fraud because no GST changes hands between buyer and seller.

The reform also solved a genuine commercial problem. Without zero rating, a GST registered buyer of a $2 million commercial property would pay $300,000 in GST at settlement and wait weeks or months to claim it back on the next GST return. Compulsory zero rating removes that funding burden for qualifying sales. Before 1 April 2011, the main relief was the going concern rule under section 11(1)(m), which applied in far fewer transactions. See Inland Revenue's background on the zero rating of land transactions.

Conditions for compulsory zero rating

Under section 11(1)(mb) of the GST Act 1985, zero rating is compulsory when:

• The seller is GST registered and selling in the course of their taxable activity
• The buyer is GST registered
• The buyer intends to use the property for making taxable supplies
• The property will not be used as a principal place of residence by the buyer or an associate

Zero rating written statement

For zero rating to apply, the buyer must provide a written statement to the seller (usually in the Agreement for Sale and Purchase) confirming:

• Their GST registration number
• That they are acquiring the property for making taxable supplies
• That the property will not be their (or an associate’s) principal place of residence

Tested at settlement, not at signing

Compulsory zero rating is tested at settlement, not when the agreement is signed, so a sale can flip between 0% and 15% in the weeks or months between signing and settlement.

Section 11(8B) of the Goods and Services Tax Act 1985 requires all the zero rating conditions to be satisfied at the time of settlement. If the buyer's GST registration is cancelled before settlement, if the vendor deregisters, or if the buyer changes their intended use of the property, the conditions can fail and the sale must be standard rated at 15%. A declaration that was accurate when signed may be out of date by settlement day.

This is where buyers and sellers get caught. Where a sale settles zero rated but should have been standard rated, the buyer becomes liable for the GST under section 5(23), a $150,000 surprise on a $1 million purchase, while the vendor faces the commercial fallout and possible penalties. Property lawyers treat the final days before settlement as a checkpoint: recheck both parties' GST registration numbers against Inland Revenue records, confirm the buyer's written statement still reflects their position, and confirm the intended use of the property has not changed. Where a nominee is settling on behalf of someone else, the vendor must investigate the nominee's GST status, because the nominated party's status determines the treatment. See the risks of zero rating changing between signing and settlement set out by Fortune Manning.

Going concern

A going concern sale is when a business (or part of a business) is sold as a functioning entity and the buyer continues the same taxable activity. Property can qualify as a going concern when it is sold with an existing income producing activity.

Since compulsory zero rating of land from 2011, going concern is less often the main rule, but it still matters for some deals. Work the land tests in zero rating of land transactions NZ.

Paperwork for a zero rated land sale

A zero rated land sale still creates paperwork. The seller must hold the buyer's written statement and records, issue a tax invoice showing GST at 0%, and report the sale on the GST return.

The buyer's written statement, required by section 78F of the Goods and Services Tax Act 1985, covers their GST registration status, their GST number, their intention to use the land for making taxable supplies, and confirmation the land will not be a principal place of residence. Once that statement is provided, the supplier is entitled to rely on it and is not required to make further enquiries. But if the supplier has reasonable grounds to believe the statement is wrong, they may choose to charge 15% instead. If the buyer refuses to provide a statement at all, the supplier should standard rate the transaction.

On records, section 75(3B) requires the supplier to keep the recipient's name, address and registration number, a description of the land, and the consideration. The tax invoice should show the GST charged as $0.00 at 0%. It must not say "GST exempt" or leave the GST line blank, because a zero rated supply is still a taxable supply within the GST system while an exempt supply sits outside it. Labelling the invoice wrongly misstates the nature of the supply and can create problems in an Inland Revenue review.

On the GST return, the sale value goes into Box 5, "Total sales and income for the period (including GST and any zero rated supplies)", and is repeated in Box 6, zero rated supplies. A large property sale sitting in Box 5 with no matching Box 6 entry will attract Inland Revenue's attention. From the buyer's side, there is nothing to claim back: the GST charged was zero, so no input tax credit arises on a zero rated purchase.

Residential vs commercial property

GST treatment differs between residential and commercial property:

Split GST treatment for mixed use sales

When one property has components with different intended uses, a single sale can attract split GST treatment: part zero rated at 0% and part standard rated at 15%.

The classic example is a farm sale where the buyer will continue farming the land but will live in the farmhouse as a principal place of residence. The farmland meets the zero rating conditions, while the farmhouse and its curtilage do not and remain standard rated. Say a dairy farm sells for $2,000,000 and a registered valuation attributes $300,000 to the farmhouse and its curtilage (assuming the farmhouse formed part of the vendor's taxable activity; a purely private residence outside the taxable activity would instead sit outside the GST rules). The GST outcome is $0 on the $1,700,000 farming component and $45,000 (15% of $300,000) on the residential component.

The sale price must be apportioned between the components using a reasonable method. A registered valuation is the most defensible approach in our opinion, and IRD's test is simply that the method used is "a method that produces a fair and reasonable result". Apportioning by land area is simpler but can produce distorted results when the components have very different values per hectare. Buyers and sellers have opposing incentives here: vendors prefer more value in the zero rated component while buyers want a higher standard rated allocation to maximise their input tax credits. For that reason the agreed apportionment should be written into the agreement for sale and purchase before settlement, and the tax invoice should show each component with its own value and GST rate rather than a single blended line.

Practical examples

Buying from a seller who is not GST registered

If you are GST registered and you buy land from someone who is not registered, compulsory zero rating does not apply and you can usually claim a GST input tax credit on the purchase as second hand goods.

The second hand goods rule lets a GST registered buyer claim GST on goods bought from a non registered person, provided the buyer will use the goods in a taxable activity. The seller charges no GST, but the buyer still gets to claim. For example, a developer who is registered for GST buys a lifestyle block for $800,000 from a private owner to subdivide. The GST claim is 3/23 of $800,000, which is $104,347.83.

Contrast this with buying from a registered seller, where the sale is zero rated and there is nothing to claim. This distinction is the trap that catches property traders: they negotiate a price assuming they can claim the GST, then discover the vendor is registered, the sale is zero rated, and the expected claim never materialises. Be aware that Inland Revenue can investigate and retrospectively deem a vendor to be registered, so take written advice on the vendor's GST status before contracts go unconditional.

Property traders and mortgagee sales

If you buy and sell property as a business, the GST treatment of each purchase turns on the seller's GST status, and getting it wrong is one of the most expensive mistakes in property dealing.

The trade works like this. A property purchased for dealing purposes generates a GST claim on purchase and GST payable on sale. But the claim depends on the vendor. If the vendor is not registered, a GST claim is available. If the vendor is registered, the purchase is zero rated and no GST can be claimed. A well known illustration from the accounting firm GRA: a trader agrees to buy a property for $1.15 million "including GST" and expects to claim $150,000 back. It turns out the vendor is registered, so the sale is zero rated. The trader loses the entire $150,000 claim and still has to account for GST when they sell. Because recovery from a vendor is difficult and costly, GRA advises getting GST advice in writing and adding agreement clauses that preserve the right to pursue the vendor and its directors if the stated GST status turns out to be wrong. See GRA's GST issues for property traders.

Mortgagee sales add another twist. The default GST position is that a mortgagee sale is subject to GST even when the defaulting borrower is not GST registered. The exception applies when the lender can establish that the defaulting mortgagor is not registered, in which case the sale can be made on a non registered basis. If you are buying at a mortgagee auction, confirm the GST basis in the auction terms before you bid.

Change in use adjustments

If a property’s use changes after a zero rated purchase, the buyer may need to make a change in use adjustment that triggers a GST liability.

When zero rating is applied incorrectly

If a land sale is zero rated when it should have been standard rated, the buyer is treated as making the supply and must account for 15% GST to Inland Revenue, and Inland Revenue can force an unregistered buyer to register.

This is section 5(23) of the Goods and Services Tax Act 1985. The buyer is treated as making a taxable supply of the land on the date the error is found, for a value equal to the purchase price, so on a $1 million property the buyer owes $150,000 of output tax, returned in the GST period in which the error is discovered. If the buyer is not registered, Inland Revenue can require them to register, and use of money interest runs from the due date of the GST return for the period in which the error is found. The buyer is denied an input tax deduction on that deemed supply, although they can later ask to cancel the forced registration. Inland Revenue's worked example is a buyer who stated she was registered when she was not: the supplier zero rated a $1 million sale, and after settlement the buyer had to account for $150,000 in GST with no input credit.

The reverse error also hurts. If the sale was standard rated when it should have been zero rated, the buyer has paid 15% they did not need to bear and faces a cash flow wait until the refund arrives. Note that a buyer who overpays GST cannot get a refund directly from Inland Revenue; their remedies lie against the vendor under the agreement. Corrections can be made before settlement with credit and debit notes under section 25, and Inland Revenue encourages voluntary disclosure of errors after settlement, and its general shortfall penalty policy allows penalties to be reduced when the disclosure is voluntary. The full correction mechanics are set out in Inland Revenue's interpretation statement IS 17/08.

GST on a home used for Airbnb or short stay accommodation

A home used for Airbnb or short stay accommodation can become a taxable activity for GST, and that changes the GST treatment when you later sell the property.

Short stay accommodation is a taxable supply, so registration is required once taxable supplies exceed $60,000 in a 12 month period. If you are already registered for another activity, the short stay income must be returned under your existing registration even if the accommodation alone is below the threshold. Some owners choose to register voluntarily to claim input tax on setup costs, but that registration has consequences at sale time.

Inland Revenue's example, explained by BRANZ, shows the sting. A couple buys their family home for $600,000, rents it out as short stay accommodation for 70 nights a year, and registers for GST. They claim an input tax deduction of $15,009 (70 nights divided by 365 is about 19.2% of the $78,261 maximum input tax). When they later sell for $800,000, they must return GST output tax of $104,348 on the full sale value, 3/23 of $800,000. They also get an extra input credit of $63,252, the maximum input tax less what they already claimed. The net result: they pay GST on the property's full capital gain even though about 80.8% of its use was private. Read BRANZ's GST and short term stays.

If you stop the short stay activity, the GST position depends on what else you do. If you have no other taxable supplies, you must deregister and will generally have to return GST output tax on the property's market value. If you keep making taxable supplies through another activity, you instead repay the input tax you previously claimed, usually spread over up to 2 years, which is cheaper than paying output tax on the market value if the property has appreciated.

GST on a deposit retained when a land sale falls through

When a land sale agreement is cancelled and the seller keeps the deposit, no GST is payable on the deposit. Inland Revenue's position, set out in QB 25/18 in July 2025, is that the seller makes no supply of land and no other supply in return for the deposit, so there is nothing for GST to attach to. The deposit is treated as compensation for the buyer not completing the purchase, not as payment for a supply.

Take a $1 million sale with the standard 10% deposit of $100,000. If the buyer defaults and the seller cancels the agreement and keeps the deposit, the $100,000 attracts no GST. If the seller had already returned GST output tax on the deposit, or the buyer had already claimed a GST input tax credit for it before the agreement was cancelled, both sides reverse those entries in the GST return for the period in which the agreement is cancelled.

This replaced Inland Revenue's earlier position from 2005, which treated the deposit as taxable when paid and then reversed the GST on cancellation. The 2025 guidance is simpler: where the sale falls through, the GST consequences fall away with it. The boundary to keep in mind is that the agreement must genuinely be cancelled with no transfer of ownership. If the sale completes, the deposit is part of the sale price and takes the normal GST treatment of the sale. See Inland Revenue's question on deposits retained in a cancelled land sale agreement.

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