CZR application to certain supplies
IR has just released a draft QWBA, as a follow-up to IS 17/08 – Goods and Services Tax – Compulsory Zero-rating of Land Rules (General Application). It was felt that IS 17/08 left the door open on certain supplies, from the perspective of whether they involved a supply that wholly or partly consisted of land.
The QWBA discusses the following supplies:
- the sale of transferable development rights (TDR’s),
- the sale of standing timber,
- the sale of a purchaser’s interest in a sale and purchase agreement for land; and,
- the grant of a licence to use land.
For those of you who have not dealt with TDR’s before, they are essentially a saleable right that is created when an owner of land who in essence has land that the local Council does not favour further development of (environmentally sensitive properties, open space, wildlife habitats, historic landmarks, or any other places that have value to a community), sells their right to develop their own land (so for example covenants with Council they will fence off from farming a wetland area which can then become a wildlife habitat), to someone who owns land that Council would like to see developed further (say in an urban area), but presently lacks the right under the RMA to do so for whatever reason. So, the first person, the owner of donor land, can sell their TDR to the second person, the owner of the receiving site.
Now because a TDR is ‘purely a creature of the RMA’ as one court judgement referred to them, and in essence simply enables the owner of a receiving site to obtain a subdivision consent where they would not otherwise have been able to, my first thought was that while the TDR was clearly not an estate or interest in land itself, it would also not have a sufficient causative link to amount to a right that gives rise to an interest in land either, because the owner of the receiving site is simply obtaining a right to subdivide land which they already own.
IR however considers that the phrase ‘gives rise to’ should be interpreted broadly, thereby meaning ‘indirectly or directly gives rise to’ and consequently considers that a TDR does give rise to an interest in land, to which the CZR rules should apply.
The QWBA then progresses through an analysis of the other three items, with findings that:
- The sale of standing timber which is a profit à prendre (the right to take something off another person’s land, or to take something out of the soil) is an interest in land under the common law, therefore subject to CZR;
- Application of the CZR rules to the sale of a purchaser’s interest in a sale and purchase agreement for land, is dependent on whether the sale and purchase agreement is binding or non-binding. Note that most conditional agreements (e.g. subject to finance) are still binding as opposed to say an agreement where a due diligence process must be completed first before the purchasers will bind themselves to a contract with the vendor, which would be a non-binding agreement. The former is subject to CZR, where the latter is not.
- The grant of a license to use land does not create any interest in the land or proprietary right that is binding on the licensor, and consequently a supply of this nature will not be subject to CZR.
The deadline for comment on the draft QWBA is 3rd November 2020, its reference being PUB00381.
GST on LHFAP payments received by body corporates
IR has issued a Commissioner’s Statement CS 20/05, with respect to the GST treatment of payments received by a GST registered body corporate from the Ministry of Business, Innovation and Employment (MBIE) under the Leaky Homes Financial Assistance Package (FAP).
Under the FAP scheme, MBIE makes payments to eligible claimants as a contribution towards the repair of their leaky property.
It is considered that a payment under the FAP scheme from MBIE to a body corporate is not a payment in respect of any actual supply of goods and services made by the body corporate in return for that payment. However, these payments are in the nature of a grant or subsidy from the Crown under section 5(6D) of the Act, and therefore are deemed to be in response to a supply from the body corporate.
Consequently, a GST registered body corporate which receives such payments is therefore obliged to include the GST component in its GST return and to pay for any net GST output tax.