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Understanding the GST treatment of subdivision projects

July 2024 - Tax Alert

By Sam Hornbrook & Mirei Yahagi

Subdivision projects involve dividing a piece of land into multiple lots or properties for sale or development. Understanding the GST treatment of these projects is crucial for property developers as it impacts the GST treatment of the property on acquisition, the ability to claim GST on development costs, and the GST treatment upon completion and sale of the subdivided lots.

In November 2023, the Inland Revenue issued a draft Questions We’ve Been Asked (QWBA) to address the complexities surrounding the GST rules in subdivision projects. This draft guidance aimed to provide clarity on when a subdivision project qualifies as a “taxable activity” for GST purposes. For further discussion on the draft QWBA. The final QWBA guidance has now been released by the Inland Revenue. This final guidance includes some important changes from the draft version, which we have outlined below.

What is a taxable activity?

In order to register for GST, a taxpayer is required to have a “taxable activity”. The key element of the legislative definition of taxable activity is: “any activity which is carried on continuously or regularly by any person, whether or not for a pecuniary profit, and involves or is intended to involve, in whole or in part, the supply of goods and services to any other person for a consideration; and includes any such activity carried on in the form of a business, trade, manufacture, profession, vocation, association, or club”. Any initial or preparatory steps taken in a subdivision project can also form part of the taxable activity.

In relation to subdivisions, many aspects of the definition are satisfied, however a key question is whether the activity is sufficient to be considered continuous or regular. It can be difficult to work out whether a subdivision project is a continuous or regular activity because activities involving land usually involve a lot of work, time, and cost, but the number of supplies made is often low.

If the activity is continuous and regular the taxpayer can register for GST, if it is not, GST registration is not possible. This can have a material impact on cashflow when undertaking a development and ultimately impact on whether GST needs to be charged when the subdivided land is sold.

Key changes in the final QWBA

The changes made by Inland Revenue between the draft and final guidance aim to provide further clarity and guidance for taxpayers.

  1. Two-Step Test:
    • The focus has shifted to a two-step test for determining whether a subdivision project qualifies as a taxable activity for GST purposes.
    • The first step is the number of lots created and sold, and the second step is the level of activity involved in the project.
    • The more sales made, the lower the scale of activity needed for the activity to be considered continuous and regular, therefore supporting that a subdivision project is a taxable activity.
  2. Clarification on “continuously or regularly”:
    • Inland Revenue now makes its view of the meaning of “continuously or regularly” clearer.
    • The guidance reflects that although there may be a fair amount of activity involved by the taxpayer, if only one supply is made, it is unlikely to be continuous or regular. Therefore, it is important to note that the number of supplies made over time is one of the key factors to supporting whether there is a taxable activity.
  3. Clarification in relevant and not relevant factors:
    • The “time and effort” factor now provides additional information about what is and is not relevant when determining whether there is a taxable activity.
    • If a taxpayer is putting in minimal time and effort then this may be one of the factors that indicates the activity is not continuous or regular, but this fact on its own is unlikely to impact the conclusion of having a taxable activity (or not).
  4. More details provided about when a taxable activity begins:
    • The guidance now discusses preparatory steps and clarifies that the preparatory steps to the commencement of a taxable activity can form part of the taxable activity (but on its own is not sufficient for a taxable activity).
    • Makes references to the new disclosure requirements in section 61B of the Tax Administration Act 1994 (TAA) if the taxpayer acquired land with the intention of using it to make taxable supplies (note, to date the Inland Revenue has not released the disclosure form required).
  5. New examples providing additional scenarios:
    • Additional examples have been added to provide greater clarity over some of the more grey areas rather than focusing on clear examples.
  6. A fact sheet summarising the QWBA aimed at taxpayers involved in subdividing activities has been added, including:
    • A helpful diagram illustrating that Inland Revenue generally considers that if a subdivision leads to the creation and sale of four or more lots, it will be a taxable activity, unless the level of work involved is very low. If the subdivision leads to the sale of two or three lots, it will be important to consider the amount of activity involved to subdivide and sell the lots – see below:
  • Inland Revenue notes that the above same approach will generally apply to other activities involving land development activities, but the same criteria are unlikely to apply to other types of activity.


The final guidance from Inland Revenue does help provide greater clarity on the GST treatment in subdivision activities but does not have all the answers.

For any developers that have mixed-use developments, or a change in use, additional care should be taken. If a developer originally intended to sell but decides to rent out residential properties (e.g. temporarily), it may lead to GST concurrent use rules and/or change in use adjustments for GST purposes. These scenarios often require careful consideration and expert advice to navigate potential GST complexities, our April 2023 Tax Alert provides further background on these complexities.

We recommend that property developers get appropriate advice to ensure compliance and navigate potential pitfalls in property development activities. If you have any questions or require further assistance, please do not hesitate to reach out to your usual Deloitte advisor.

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