Zero rating of land transactions NZ: compulsory zero rating and IS 17/08
How compulsory zero rating of land works at settlement, what the purchaser must tell the vendor, and what IS 17/08 says when the GST rate is wrong.
Compulsory zero rating of land is not a discount and it is not optional. When the tests in the Goods and Services Tax Act 1985 are met, a GST registered vendor must charge GST at 0% on a supply that wholly or partly consists of land. The vendor does not return output tax on that sale. The purchaser cannot claim input tax on that purchase. Inland Revenue (IRD) brought the rules in from 1 April 2011 to stop phoenix schemes, where a buyer claimed a GST refund and the seller never paid the matching output tax.
This page is a working companion to Inland Revenue interpretation statement IS 17/08, issued 15 September 2017. It is for New Zealand vendors, purchasers, lawyers, and accountants dealing with commercial land, farms, development sites, and mixed supplies. Figures are working papers for the 2026/27 year (1 April 2026 to 31 March 2027). GSTCalc.nz is not Inland Revenue. Ads may fund this free site. This is not tax advice.
The settlement test, not the signing test
Section 11(1)(mb) of the GST Act 1985 zero rates a land supply between registered persons when the purchaser intends to use the goods for taxable supplies and the land is not a principal place of residence for the purchaser or a relative. Section 11(8B) tests those facts at settlement. Inland Revenue’s zero rated supplies page says that if any condition fails at settlement, the supply must be taxed at 15%.
Does compulsory zero rating apply to this deal?
Work the tests in order. IS 17/08 puts a flowchart in Appendix 1 for the same path. Category home: Property & Assets GST Hub. Wider sale context: GST on property sales NZ.
What counts as land for these rules?
“Land” in the zero rating of land rules is defined in section 2 of the GST Act 1985. It is wider than a fee simple title. IS 17/08, QB 20/04, QB 21/08, and QB 24/05 then map the edge cases. Commercial buildings used in a taxable activity sit in the commercial property GST guide. Developer sales: GST for property developers and investors.
| Supply | Land for CZR? | Official source |
|---|---|---|
| Estate or interest in land, including buildings that are fixtures | Yes | GST Act s 2 |
| Option to acquire land, or a right that gives rise to an interest in land | Yes | GST Act s 2 |
| Share in a flat owning or office owning company (Land Transfer Act 2017) | Yes | GST Act s 2 (current text) |
| Grant of an easement | Yes | QB 20/04 |
| Assignment of a purchaser’s interest in a sale and purchase agreement that gives an equitable interest | Yes | QB 20/04 |
| Transferable development rights (council TDR style consents) | No | QB 20/04 |
| Mortgage; lease of a dwelling | No | GST Act s 2 |
| Ordinary commercial rent (periodic, no large lump sum) | Usually no | s 11(8D)(b); QB 21/08 |
| Standing timber or unsevered crops where the buyer benefits from further growth | Can be yes | QB 24/05; forestry rights under the Forestry Rights Registration Act 1983 |
If land is only one part of a single composite supply, IS 17/08 says the whole supply is zero rated when section 11(1)(mb) is met, not just the dirt. Plant, stock, and services bundled into that one supply ride with the land. Separate supplies in the same contract are rated one by one. IS 17/03 is Inland Revenue’s statement on single supply versus multiple supplies. Harvested logs sold as goods are a different question: GST for fishing and forestry NZ.
Pull highlight: Inland Revenue’s zero rated supplies page excludes leases for dwellings and most commercial leases from this land definition. Regular rent usually stays at 15%. Assignments, surrenders, and some lump sums of more than 25% of the term consideration can still be CZR land.
The purchaser’s written notice (section 78F)
Whenever a supply wholly or partly consists of land, the purchaser must notify the vendor at or before settlement. That duty sits in section 78F of the GST Act 1985. It applies even if the vendor is not GST registered. IS 17/08 records that the vendor cannot waive it, citing Y & P NZ Limited v Wang [2017] NZCA 280.
The notice must say, as at settlement, whether the recipient is or expects to be registered, whether they intend to use the goods for taxable supplies, and whether they intend to use the land as a principal place of residence for themselves or a relative. Section 78F(2B) also requires a registered purchaser to give their GST registration number. On a standard ADLS/REINZ agreement this is usually the GST schedule. If facts change before settlement, send an updated written notice. If a nominee takes the supply, the notice must be about the nominee, not the original signatory.
The vendor may rely on the most recent written notice under section 78F(3). IS 17/08 says a vendor should only depart from that notice if they know the departure will produce the correct GST treatment at settlement. If the purchaser will not notify, IS 17/08 recommends standard rating unless the vendor is confident CZR will apply. A wrong standard rate can still be corrected later. On a mortgagee sale, give the notice to the lender, while section 5(22) still tests CZR as if the borrower made the supply.
Plus GST, if any, versus GST inclusive
The contract words decide who wears a GST surprise if the rate changes between signing and settlement. They do not override section 11(1)(mb). If CZR applies, GST at 0% is still GST: the amount of tax is $0. Zero rated is not the same as exempt. Split: exempt vs zero rated supplies.
Plus GST, if any
If CZR applies, the purchaser pays the stated price and GST is $0. If CZR fails, GST at 15% is added on top. IS 17/08 Example 6: $1 million plus GST, if any, and the vendor accounts for output tax of $150,000. Vendors usually prefer this wording.
GST inclusive
If CZR applies, the stated price is what changes hands and GST is still $0. If CZR fails, the vendor’s net receipt shrinks because 15% GST comes out of that inclusive figure. IS 17/08 Example 7: $1 million inclusive leaves the vendor $869,565 after $130,435 GST.
Plus GST, if any: $500,000, then GST at 15% if standard rated = $75,000 (Example 5).
GST inclusive $1 million, standard rated: GST output tax = $130,435, vendor net $869,565 (Example 7).
If you only need to add or strip 15% on a figure, use the free GST calculator.
The GST inclusive refund trap
A GST registered buyer who treats “inclusive of GST” as “15% is sitting in the price for me to claim” is reading the contract the wrong way when CZR applies. Compulsory zero rating means the GST in that inclusive price is 0%. There is no input tax claim. The same trap appears when a last minute nominee is not registered: a plus GST contract can still fund the vendor’s 15% bill; an inclusive contract may not.
Dwellings, farms, and mixed supplies
Before you apply section 11(1)(mb), section 5(15) can split a supply. A principal place of residence, and a dwelling used exclusively for exempt residential accommodation for five years or more (section 14(1)(d)), are each deemed a separate supply from any other real property in the same deal. IS 17/08 says that split looks at the vendor’s use, not the purchaser’s plan. The farmhouse and curtilage on a going concern farm sale is the classic case. Going concern zero rating under section 11(1)(m) can apply to the same supply as CZR. If CZR also applies, the purchaser still considers a section 20(3J) adjustment. Farm and going concern walkthrough: farming and agriculture GST and GST on buying or selling a business.
A GST registered hairdresser buying a new house from a GST registered developer to live in does not get CZR. IS 17/08 Example 2 standard rates that sale because it is the purchaser’s principal place of residence and is not used to make taxable supplies. Long term residential rent stays exempt: GST on residential rent in NZ.
In practice
Use case: Wiri workshop (IS 17/08 Example 1 shape)
Situation: A GST registered vendor sells a building. The individual purchaser nominates a GST registered joinery company before settlement and sends an updated section 78F notice. GST: CZR at 0%, including apportioned rates in that land supply. Action: Vendor keeps name, address, GST number, land description, and consideration as section 75(3B) records. Company claims no input tax.
Use case: Papamoa new house (IS 17/08 Example 2 shape)
Situation: GST registered developer sells a new house to a GST registered hairdresser who will live there and not work from home. GST: Standard rated at 15%. CZR does not apply. Action: Complete the GST schedule honestly. Do not mark the vendor as unregistered just because the building looks like a home.
Use case: Levin garden centre (IS 17/08 Example 4 shape)
Situation: Sale of business land and shop plus a house the vendor never put in the taxable activity. Purchaser will convert the house to a café and use 20% of remaining land privately. GST: House split under s 5(15). Rest of the supply zero rated. Purchaser pays output tax under s 20(3J) on the private slice (example figure $30,000). Action: Price the house separately and keep the café conversion plan in writing.
If the GST rate is wrong
Time of supply can fall on a deposit or an invoice before settlement. The correct CZR answer is still taken at settlement. IS 17/08 says the Act does not force a pre settlement rewrite, but a voluntary credit or debit note under section 25 avoids being wrong on the day. After settlement the correction path changes.
| What went wrong | Before settlement | After settlement |
|---|---|---|
| Charged 15% when CZR applied | Vendor issues a credit note (s 25). Purchaser reverses any input tax claimed. | Same credit note path. IRD may hold a refund pending review (s 46). |
| Charged 0% when 15% applied | Vendor issues a debit note and pays output tax. | Section 5(23): the purchaser is treated as the supplier on settlement date. Vendor does not correct. Purchaser cannot claim input tax on that deemed supply unless s 20(4B) later allows it. |
IS 17/08 Example 9 is the after settlement trap people underestimate. A purchaser who said they were registered, used the land for taxable supplies, and would not live there, then turns out not to have been carrying on a taxable activity, is treated as making a $1 million supply. GST is $1 million × 15% = $150,000 even if the contract said GST inclusive. They must apply to register. They may ask to cancel registration in the same taxable period so section 5(3) does not add another deemed supply on the assets.
IS 17/08 Example 10 is the other way round. Unregistered vendors who should have been registered on a subdivision can lock the purchaser out of a secondhand goods claim, because the sale should have been CZR. Secondhand credits when the vendor truly is unregistered: GST on second hand goods NZ.
Settlement checklist
- ✓ Front page GST status: A developer selling a spec house in a taxable activity answers yes, even if the building looks residential.
- ✓ GST schedule: Complete it. Update it if a nominee, registration, or intended use changes before settlement.
- ✓ Price words: Vendors in a taxable land sale usually want plus GST, if any.
- ✓ Return boxes: CZR sales still go in as zero rated supplies. They are not “not reportable”.
- ✓ Records: Vendor keeps purchaser name, address, GST number, land description, and consideration (s 75(3B)).
- ✓ Non profits: Section 11(8D)(d) and IRD’s zero rated supplies page can treat a New Zealand resident non profit body as intending taxable use unless a special election applies.
What people get stuck on
Property forums keep asking whether both parties being GST registered is enough. It is not. The purchaser still needs a taxable use intention, and none of the land can be a principal place of residence for them or a relative. Mixed shops with a flat, on site manager units, and “inclusive of GST” claims for 15% refunds are the same three traps. Geekzone threads that treat zero rating as optional cashflow relief between two registered entities understate the rule: when the tests are met it is compulsory.
From 1 April 2026, section 11(1)(md) zero rates some joint venture property interests that do not consist of land. Interests that do consist of land still sit under compulsory zero rating in section 11(1)(mb).
FAQs
01When does compulsory zero rating of land apply in New Zealand?
A GST registered vendor must charge GST at 0% on a supply that wholly or partly consists of land when, at settlement, the purchaser is also a registered person, the purchaser intends to use the goods for making taxable supplies, and the land is not intended as a principal place of residence for the purchaser or a relative. If any of those tests fail at settlement, Inland Revenue says the supply must be taxed at 15%.
02Does GST inclusive mean I can claim 15% on a land purchase?
No. If compulsory zero rating applies, GST inclusive means GST is charged at 0%, so the GST amount is $0. You cannot claim an input tax deduction on that purchase. Inland Revenue’s IS 17/08 is clear: the vendor does not pay output tax and the purchaser cannot claim input tax.
03What happens if a land sale is zero rated when it should have been 15%?
After settlement, section 5(23) of the GST Act 1985 treats the purchaser as making a standard rated supply of those goods on the settlement date. The purchaser, not the vendor, accounts for the output tax. If they were not registered, they must apply to register. IS 17/08 Example 9 works this at $1 million × 15% = $150,000 even where the contract was described as GST inclusive.
04Do commercial leases have to be zero rated?
Usually no. Inland Revenue’s QB 21/08 says most supplies under commercial leases stay outside compulsory zero rating. Regular rent is still typically standard rated at 15%. Assignments, surrenders, lease procurement, and some lump sum payments of more than 25% of the term consideration can still fall under the land rules if the other section 11(1)(mb) tests are met.
Read IS 17/08 on Tax Technical and Inland Revenue’s zero rated supplies page. Publisher path: About Us and Contact Us.
Last verified 4 September 2026 against Inland Revenue IS 17/08, zero rated supplies, QB 20/04, QB 21/08, QB 24/05, and the Goods and Services Tax Act 1985 (including ss 2, 5(15), 5(23), 8, 11(1)(mb), 11(8B), 11(8D), 75(3B), and 78F). Ads may fund this free site. Not tax advice.