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Peter Dunne targets property traders to close NZ$50 mln loophole

Peter Dunne targets property traders to close NZ$50 mln loophole

Inland Revenue Minister Peter Dunne has proposed changes to GST rules on the sale of land and other high value assets to close down a loophole used by property developers that is costing taxpayers at least NZ$50 million in lost revenue. "The proposals target sellers and buyers in transactions involving high-value assets. In these transactions GST revenue can be lost by the government from a small minority of taxpayers deliberately using differing GST accounting treatments or winding up a vendor company so that no GST is paid," Dunne said. We welcome your insights and comments below. Here is the full statement below from Dunne. Here is the full discussion document.

Law changes to the GST rules on sales of land and other high-value assets are the focus of a discussion document released today by Revenue Minister Peter Dunne. "The proposals target sellers and buyers in transactions involving high-value assets. In these transactions GST revenue can be lost by the government from a small minority of taxpayers deliberately using differing GST accounting treatments or winding up a vendor company so that no GST is paid." "A conservative estimate puts the loss of GST revenue from the property development sector through such activities at about $50 million a year, and probably growing," Mr Dunne said. "That is clearly unacceptable and will be stopped. "The discussion document seeks public feedback on proposals for stopping these activities, as well as for clarifying a range of other GST issues for high-value transactions and making them more consistent - which is in everyone's best interest. "The main proposal is to introduce a mechanism known as a domestic reverse charge, whereby the obligation to account for GST in transactions involving land, other assets worth more than $50 million, and those involving "˜going concerns', would be shifted from the seller to the buyer. "As well as addressing revenue risk, the reverse charge would benefit businesses by removing cash flow concerns for the parties to a transaction in the period between GST payment and input deduction. It would also reduce the risks to sellers of an unexpected GST liability arising when, for example, a transaction is incorrectly zero-rated as a going concern. "Other changes proposed in the discussion document are aimed at making it easier to account for the taxable and non-taxable use of assets on which GST is paid. Specifically, the existing change-in-use adjustment would be replaced by an approach that would apportion input tax deductions in line with the actual use of goods and services. "Similarly, the discussion document proposes clarifying the boundary between residential accommodation, which is GST-exempt, and commercial accommodation, which is not. That would ensure better consistency of GST treatment of equivalent types of accommodation. "These are some of the proposed changes set out in this very timely discussion document. I urge all interested parties to have their say on the workability of the proposals and the draft legislation that accompanies the text," Mr Dunne said.

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