A Week in Review

GST CZR Interpretation Statement Finalised

Having considered public submissions on the issue since the release of PUB00255 back in May 2017, IR has now released IS 17/08: “GST — compulsory zero-rating of land rules (general application)”.

IS 17/08 is intended to simply assist vendors and purchasers in getting the GST position correct before any transaction including land settles, and provides a general overview of the compulsory zero-rating rules (“CZR”), which have applied since 1st April 2011.

My own experiences with CZR since introduction, would suggest the following key issues are kept in mind whenever you are advising your clients:

• The personal residence exclusion cannot apply where the purchasers are non-natural persons – however do not then overlook the requirement to make subsequent output tax adjustments post the initial CZR treatment, if your client is actually intending to reside on the land.
• Where a supply of land includes a dwelling, legislation deems there to be two separate supplies. Consequently even where a natural person purchaser intends to live in the dwelling, the remainder land (that not including the dwelling and reasonable curtilage) could still qualify for CZR. The dwelling land should be treated as an exempt supply in the majority of cases.
• If a transaction does not qualify CZR, it may still qualify for zero-rating under the going concern rules, which have remained in place since the introduction of CZR.
• Should a transaction erroneously by zero-rated by the vendor, unlike the rules pre 1st April 2011, the obligation now lies with the purchaser to correct the mistake, which may include having to sue the vendor for recovery of GST now payable to IRD, should the agreement have been transacted on a GST inclusive “if any” basis (i.e. the purchaser would never have paid a dollar more than what they did on settlement regardless of GST treatment). Note that the rules include a requirement for the purchaser to register for GST for the sole purpose of correcting the error where they are not registered, with the ability of IR to force register where this is not done.

          IS 17/08 contains some practical examples as well as a useful flowchart.

Investing in Gold may not be that Golden…

It is probably an answer of no surprise to the majority, IR’s final position on its QWBA, whether proceeds from the sale of gold bullion should be taxable.

QWBA 17/08 has been released, and the item concludes that proceeds from the sale of gold bullion will give rise to taxable income under section CB 4, since in the majority of cases, such an investment asset can only have been purchased for one purpose – that of resale.

The approach is not that difficult to understand, considering anyone who acquires gold does not do so intending to derive a reasonable annual cash return from their investment, because there simply isn’t one. Instead the majority buy as a way of diversifying their overall investment portfolio, but the only return can be from disposing at a time when the sale price per ounce is more than the purchase price per ounce when they original acquired the gold.

IR does accept however that they may be cases where section CB 4 does not apply, where the taxpayer can show that the dominant purpose of acquisition was not that of resale e.g. circumstances where bullion is acquired for the dominant purpose of building up a diversified portfolio of property that the person will not necessarily realise, however the onus will always be on the taxpayer to prove such a position taken.

It should be noted that since IR expects most gains on the disposal of gold bullion to be subject to tax under section CB 4, then equally losses on disposal and the associated costs of holding the asset, such as storage costs, funding interest and insurance should be deductible.