The changes to the way land transfers are made between GST-registered business people should substantially ease cash-flow problems, tax expert Peter Truman says.
The changes were passed in Parliament late last year and allow for the transfer of land for business purposes to be rated 0% as long as both parties are GST-registered.
''In a lot of cases, it will do away with cash-flow problems. In the past, you paid for the land and waited a while to get the GST component back.''
In some cases, GST was quite substantial, being 15% on top of the purchase price - pushing up borrowing costs - which the purchaser could not claim back until the end of the GST period, he said.
The IRD would process the claim, perhaps question the validity of the claim, then decide whether or not to pay the refund.
''There is no longer the need to consider whether or not the transaction is a going concern.''
The changes did not affect sale of land from a registered person, such as a developer, to an unregistered person.
That sale would still be subject to GST at 15%.
Sales of residential land (family home) between unregistered individuals remained exempt from GST.
The use of a 0% GST rate, rather than exemption from GST, meant the land stayed within the GST base.
GST on expenses incurred in relation to the land could still be claimed as a refund, and a future sale to an unregistered person might be subject to GST at 15%, Mr Truman said.
There had been much uncertainty around zero-rating business sales as ''going concerns''.
Now, provided the business sale included land, it would be zero-rated.
The new regulations come in on April 1.
Currently, the purchaser pays GST to the vendor and claims GST back from the Inland Revenue Department.
The vendor receives GST from the purchaser and pays it to the IRD.
The IRD receives GST from the vendor and pays it to the purchaser.
''From IRD's perspective, the transaction will not result in it collecting any tax, as it refunds the purchaser the amount of GST paid by the vendor.''
However, there were circumstances where the IRD paid the GST refund to the purchaser and never received the GST from the vendor, Mr Truman said.
Some tax-avoidance arrangements had targeted the ability of purchasers to claim GST refunds before the vendor had paid the GST to the IRD.
''IRD can also be left out of pocket when an insolvent vendor sells land and after repaying its mortgage has insufficient funds to pay the GST.
Meanwhile, the IRD has paid a GST refund to the purchaser.
''Due to the significant amounts of GST involved with land transactions, IRD considered the existing treatment of land transactions created the potential for significant loss of tax revenue for the Government,'' he said.
