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If you purchase land and it is zero-rated, you need to make an adjustment if you use the land for non-taxable purposes.

Before you start

You will need the value of GST that would be charged on the supply of the land and related goods and services if it was not zero-rated, and the percentage of land that is not intended to be used for making taxable supplies.

Calculate the GST adjustment

Use the following method to calculate:

GST value x percentage of land not used for making taxable supplies

Sarah's zero-rated renting

Sarah purchased a building for $3 million. The supply to Sarah is zero-rated.

She intends to rent the ground floor (60%) to commercial tenants and the upper floor (40%) to residential tenants. Because supplying the upper floor to residential tenants is an exempt supply of residential accommodation, Sarah needs to make an adjustment.

The GST adjustment or output tax can be calculated as:

  $3 million x 15% = $450,000 (the amount of tax chargeable if not zero-rated)

  $450,000 x 40% = $180,000.

Sarah will account for $180,000 as an adjustment or output tax.

If Sarah’s intended principal purpose was to rent to residential tenants (an exempt supply), and 80% of the building was used for this purpose, Sarah could choose to include the full $450,000 as an adjustment or output tax. Sarah could then treat any subsequent sale or disposal as non-taxable (no GST charged).

GST adjustments for business, private and exempt use

You can also use our GST adjustments calculation sheet to work out your adjustment.

What happens next

  • You should use the calculated value as an adjustment to your sales and income on your GST return. You can file your return and make payments in myIR.
  • You can fix any mistakes you make in your return after you've submitted it.
  • You can use our disputes process if you disagree with our assessment.

My responsibilities

Make sure you send us your return by the due date.

Last updated: 01 Apr 2023
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