A GST-registered developer sells a vacant section to a GST-registered builder, who will build a house on it to sell. The builder will not live there, nor will anyone associated with him. How is GST charged on the sale?
Correct Answer
C) At 0%, because the land sale must be zero-rated between these registered parties.
Under s 11(1)(mb) of the Goods and Services Tax Act 1985, a supply that wholly or partly consists of land must be zero-rated if it is made by a registered person to another registered person who will use it to make taxable supplies. The land must not be intended as a principal place of residence of the buyer or an associated person. All conditions are met here.
Why This Is the Correct Answer
Both parties are registered, the buyer will make taxable supplies, and it is not a residence, so compulsory zero-rating applies.
Why the Other Options Are Wrong
Option A: At 15%, because every sale of land by a registered person carries standard GST.
Section 11(1)(mb) requires zero-rating when both parties are registered, the buyer will make taxable supplies, and it is not a principal residence.
Option B: Not at all, because sales of residential land are always exempt from GST.
Only certain residential supplies, such as long-term residential rent, are exempt; this sale is a zero-rated taxable supply.
Option D: At 0% only if the vendor chooses to zero-rate and notifies Inland Revenue.
Zero-rating of land is compulsory when the conditions are met; it is not an optional election.
Background Knowledge for Finance
Source: https://www.legislation.govt.nz/act/public/1985/0141/latest/whole.html
Exam Tip for Finance
Compulsory zero-rating: both registered, taxable use by the buyer, not a home for the buyer or an associate.
Common Mistakes to Avoid on Finance Questions
- •Assuming 15% GST always applies when a registered developer sells land.
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