What is CZR?
From 1 April 2011 it became compulsory for certain land transactions to be compulsory zero rated (CZR). This means that GST will be charged at the zero percent. The regime will apply to almost all transactions involving land that are made between GST registered parties. There are some limited exclusions.
It is clear that the transfer of land itself or any interest in land is caught by the new regime. It will also cover any rights that give rise to an interest in land, an option to acquire land and shares in a flat owning company. It does not include the transfer of a mortgage. It will only catch commercial leases where more than 25% of the total rent is paid up front. If payment is made in this way a lease will be caught by the CZR regime.
When is CZR assessed?
We are used to the GST assessment of the transaction being made as at the time of supply. Under the CZR it will be assessed again at the settlement date. It will be extremely important to consider any changes in the intervening period carefully to determine that GST is properly dealt with. The addendum that has been prepared by ADLS/REINZ for use for the standard agreement for sale and purchase is simply a base line document. It is not intended to cover all circumstances.
The Purchaser’s Statement/Addendum
Importantly, the GST tax treatment of these transactions is now determined based primarily on the purchaser’s intentions at settlement. The purchaser is required to provide a statement in writing to the vendor where CZR applies. The statement must say whether at the date of settlement:
- They are or expect to be a registered person;
- That they are acquiring the land with the intention of using it for making taxable supplies at settlement;
- That they do not intend to use the land as a principal place of residence.
The addendum has been created by ADLS/REINZ for use in the standard form agreement for sale and purchase includes each of these statements.
The vendor is entitled to rely on the information provided by the purchaser in determining the tax treatment of the supply.
Nominees will be caught by these new rules. A sale transaction will be treated as a single supply from the vendor to the nominee.
Especially given the prospect of nominees there may be changes in the GST position between the time of signing, the time of supply and the settlement date.
From the vendor’s perspective the best practice will be to make all prices “plus GST” so that, if it transpires that GST is in fact payable to the Inland Revenue Department, the vendor is able to recover the GST from the purchaser. An example would be where a purchaser intending to GST register where it was thought CZR would apply, does not do so before settlement. If the transaction is priced “plus GST” the vendor can collect the GST from the purchaser on settlement. If it is priced “inclusive of GST” the vendor cannot, yet might need to account to the IRD for the GST.