Keeping new assets out of the GST net

New GST rules apply from 1 April 2023. These allow a GST registered business that purchases an asset, which is not acquired or used principally for business use, to choose to keep the asset out of the GST net rather than making regular apportionment adjustments.

If the business chooses to keep the asset out of the GST net, the business will not charge GST on the asset when it is eventually sold. This can be beneficial where the asset is likely to appreciate, which would ordinarily mean that more GST is payable on sale than was claimed on purchase.

For example, a registered person who uses part of their main home as a home office, or for business purposes, can now elect to keep the home out of the GST net such that the home will not be subject to GST on sale.

The election is only available if the following criteria are satisfied:

• the asset was not acquired or used for the principal purpose of GST making taxable supplies,
• the business does not claim any GST either in relation to the purchase of the asset or on improvements made to the asset (although GST can still be claimed on operational costs, to the extent that these are incurred to make GST taxable supplies),
• where the purchase of the asset was zero-rated for GST, the business must return 15% of the purchase price as output tax.

If a business does not satisfy the criteria, the asset will be in the GST net. This means that GST can be claimed on the purchase of the asset (if not zero-rated) and any improvements to the asset, and GST will be payable on the sale of the asset, (with the usual GST apportionment rules applying).

Existing assets

The new rules can also apply to existing assets in certain situations which would allow an existing asset to taken out of the GST net.

Where GST has been claimed on the purchase of an asset, but the asset was not acquired or used principally for business use, a GST registered business can opt into these new rules if:

• they elect before 1 April 2025 to pay GST equal to the amount of GST that was previously claimed on the asset (or 15% of the purchase price, in the case of a zero-rated transaction), and
• they notify the Commissioner of their election, and
• they do not subsequently claim any further GST on the purchase of the asset.

GST can still be claimed on operational costs, to the extent that these costs are incurred to make taxable supplies.

Recently sold assets

There is also a window of opportunity for GST registered businesses who sold an asset between 30 August 2022 and 1 April 2023, which meets the above criteria, to apply to Inland Revenue to amend their GST return. This would involve making a retrospective election to take that asset out of the GST net and having the GST returned on the original purchase price (plus any improvements) rather than sale price. For property assets, this difference could be significant.

How we can help

If you have sold an asset during this period which meets the criteria, get in touch with the Nexia Tax Team to see how you can benefit from these new GST rules.

Likewise, if you have an existing asset, or are looking to purchase a new asset that meets the criteria, get in touch with the Nexia Tax Team to see if you should keep the asset out of the GST net.

Arrived on this page because you are looking for information on New Zealand tax laws and GST obligations? Nexia New Zealand has teams of specialist tax accountants in Auckland and Christchurch offices – please get in touch if you require some help.