Be aware of the changes set to apply from 1 April 2017 for GST zero rating of services to non-residents for land transactions
The forthcoming GST changes will affect services provided to non–residents by New Zealand resident lawyers, estate agents, architects, engineers and any other service provider in relation to land.
In general terms, services provided to non-residents can be zero rated if the services are received when the non-resident recipient is outside NZ and the services are not directly in connection with land.
Inland Revenue have revised their approach to what directly in connection with land means, and from 1 April 2017 many previously zero rated services to non-residents will be subject to GST at 15%.
What has changed?
Services to non-residents will be subject to GST where there is a direct relationship between the purpose or objective of the services and the land.
IR explain this as including services which have the purpose or objective of affecting, or defining the nature or value of land, protecting land, or affecting the ownership or any interest in or right over land.
If the services are not related to a designated property the services are not directly in connection with the land. In addition, when the part of the service that relates to the land is only an incidental aspect of the supply it is not directly in connection and zero rating can apply.
The following examples are illustrative of the before and after 1 April 2017 treatment:
- General advice on NZ Property market: Zero rated before, Zero rated after.
- General advice on NZ tax related to property transactions: Zero rated before, Zero rated after.
- Estate Agent’s selling fee; Zero rated before, Subject to GST after.
- Solicitors costs for purchase of a property and establishing trust as purchaser; Zero rated before, Subject to GST after.
- Architects costs for specific building drawings; Zero rated before, Subject to GST after.
Invariably there will be situations around the fringes which will be debateable. One example IR give is that of a law firm’s fees for establishing a trust for a non-resident which will subsequently hold land – these services can be zero rated. This begs the question as to what happens if there is a change of intention and what might be an acceptable period between establishment of the trust and acquisition of land by it to satisfy the zero rating.