New GST Zero-Rating Rule

As from 1 April 2011, all land sales will be zero-rated if the vendor and the purchaser are both registered for GST and the purchaser intends to use the land for business purposes rather than as a place of residence.

The new zero-rating rule will apply to any transaction where both the vendor and the purchaser are registered for GST and land is a component of the total assets sold, regardless of the value of that land.

Currently GST on land transactions is charged at 15%.  Unless value of the residence is, and will remain exempt from GST it can be charged at 0% (such as the sale of a going concern).

Whether your sale and purchase of land is subject to the new rules will depend on the timing.  In particular, it will depend on the time of supply for the sale and purchase of the land, being the earlier of the date on which an invoice is issued or the date any payment is received.

We urge all GST registered taxpayers, who intend to enter into a sale and purchase agreement for land before 1 April 2011, to take advice on the GST consequences before signing up.