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Latest News [index] Proposed change to GST Act will change how GST is accounted for on sales of land
"GST: Accounting for land and other high-value assets - A government discussion document" released on 5 November 2009 proposes a number of changes to the Goods and Services Tax Act 1985.
One of the proposed is the introduction of what is being called a domestic reverse charge for supplies of land, going concerns and high value supplies.
Domestic Reverse Charge
GST neutrality for business is a corner-stone principle of the Act. However, this neutrality can be compromised where GST must be accounted for before an input tax credit is available.
As the entitlement to an input tax deduction by a recipient is assessed independently of the payment of GST by the supplier, there is a revenue loss whenever a supplier does not meet its GST obligations, whether by design or due to business failure.
To address this, a domestic reverse charge ("DRC") is proposed, which will apply to supplies of land, going concerns and high value supplies. The threshold for the application of the DRC for high value supplies would be supplies of goods or services with a GST exclusive value of more than $50 million. For the purposes of the DRC land would include an interest in land and a right that gives rise to an interest in land.
If the DRC applies the recipient would self-assess GST on goods and services acquired deducting any input tax credits in the same taxable period.
The DRC would not apply to supplies to unregistered persons, which would continue to be subject to normal GST rules.
Where the DRC applies the supplier would not be liable for GST normally charged on the goods and services in question. However, the supplier would still be treated as making a "taxable supply" of goods and services to preserve existing input tax entitlements.
The Inland Revenue Department ("IRD") would not have recourse to the supplier in the event that the recipient does not account for GST, provided the supplier has complied with its GST-obligations.