Date posted: 13/07/2021 2 min read

Overview of GST on Residences – IS 20/05

Following our recent NZ Tax Roadshow, we have received several questions regarding the implication of Interpretation Statement IS 20/05 for home offices or farmhouses.

In Brief

  • Implication of Interpretation Statement IS 20/05 for home offices or farmhouses
  • If members are uncertain of how these rules could apply NZ Tax Team can provide details of a contact to discuss further.

As part of our recent NZ Tax Roadshow, our team discussed Inland Revenue interpretation statement IS 20/05 which addresses the supplies of residences and other real property for the purposes of GST. This interpretation statement references a change to the GST rules in 2011, which removed the principle purpose test and introduced apportionment rules. This statement raised some concern as the law may not reflect current practices. 

Since the Roadshow, several members have contacted our team regarding the implications for home offices or farmhouses. In summary, where a person’s residence has been used in the person’s taxable activity, the sale of the residence may be subject to GST.  In order for the rule to apply, the vendor of the residence and the person carrying on the taxable activity must be the same registered person.  For example, a sole trader that also uses their private home as an office.  

The rule applies irrespective of how minor the taxable use is.   The vendor must charge GST on the sale and then make an input tax credit adjustment using the formula in section 21F of the GST Act.  

We note the whole capital gain will be subject to GST, there is no apportionment between taxable and non-taxable use.  This problem was recognised by Officials in February 2020 in the GST policy issues paper. 

If members are uncertain of how these rules could apply to their clients, the NZ Tax Team are able to provide the details of an Inland Revenue contact to discuss this with further.