GST: zero-rating of services related to land
As amended, section 11A(1)(k) land related services provided to non-residents outside New Zealand at the time the services are performed are eligible for zero-rating, if they are:
• not directly in connection with land in New Zealand or
• not in connection with land in New Zealand and intend to enable or assist a change in physical condition, ownership or other legal status of that land or
• directly in connection to land outside New Zealand
Earlier it was zero-rated only if either it was :
• directly in connection to land outside New Zealand or
• not directly in connection with land in New Zealand
However, after the amendment the test is broadened to variety of services such as physical condition, ownership or legal status. So, if any of these services are provided to non-resident outside New Zealand which is in connection to land in New Zealand won’t be zero-rated.
Alvin, who lives in the Philippines and is not a New Zealand tax resident, inherits some New Zealand land from a relative. The land is a vacant lot. Following the inheritance, Alvin engages a New Zealand law firm to advise him on the legal obligations associated with owning the specific lot of inherited land in New Zealand (for example, rates and insurance) and what restrictions (if any) apply to the use or uses to which the land may be put.
The services supplied to Alvin do not relate to the change in ownership, physical condition or legal status of the land on inheritance. The law firm’s advice is about the implications of holding land unchanged, not about changing the land’s physical form, ownership or other legal status. Since the new test is directed at services that “change” the land in a relevant way, the services are not subject to the new wording and may be zero-rated.