The CZR rules require the supply between two GST registered persons that wholly or partly consists of land to be zero-rated if certain requirements are met at the time of settlement.
When the CZR rules apply, a vendor must include the zero-rated supply in their GST return, but they do not return any output tax for the supply. In turn, the GST-registered purchaser does not claim an input tax deduction for the purchase.
The main requirements include that the purchaser is acquiring the land for making supplies that are subject to GST and not as the purchaser's principal place of residence.
In addition, the purchaser is required to provide a written statement warranting their GST registration status and the use to which they intend to put the land. The vendor is entitled to rely on this statement when determining whether zero-rating of the transaction is required.
This statement is included in the standard sale and purchase agreement for land, along with other terms as to GST treatment of the sale.
As these rules have been in force for over six years, you would expect their application to be well understood.
However, this is an area where we are constantly seeing both vendors and purchasers getting it wrong and can have quite a significant impact on both parties.
With regards to income tax implications, it is important to be aware of any potential depreciation recovery that will result in taxable income on the sale of the buildings and any other plant.
There could also be other income tax implications particularly for the sale of livestock and forestry that may need to be discussed and planned for.
We recommend that you talk to your adviser before entering any agreement to sell or purchase land or a farming business.
Once the agreement has been signed, it may be too late to remedy any problem with GST or income tax implications.
If you are unsure of your obligations, please contact the team at Crowe Horwath.
This information is general and readers should seek specialist advice before making financial decisions.
