What is taxable activity when subdividing land?

Question from Anne Haenga updated on 11th March 2008:

Hello Can you tell me in what circumstances is land subdivisions a taxable activity for GST purposes? This is a tricky question. I am just wondering if I subdivide and build another property if the new property is considered a taxable activity and I have to pay GST. Thanks Anne

Our expert responded:

Hi Anne, Land subdivision that causes a taxable activity is defined by the intent at the start of the project. If your intention is to subdivide and build and hold for the long term then you are intending to hold for the long term and therefore you are not undertaking a taxable activity (see definition below)

IRD definition: What is a taxable activity?
A taxable activity is an activity carried out continuously or regularly by a business, trade, manufacturer, professional, association or club. It includes any activity that supplies, or intends to supply, goods and services to someone else for a consideration (money, compensation, reward) but not necessarily for profit.

If you are intending to develop the property for profit and sell to make money then you are developing and therefore it will be a takable activity. The key thing to consider is related to what your intention is and the best solution regarding trusts and entities - You will need to run this past your accountant to confirm and get the best advise. Hope that helps Adrian

Adrian Low is a property development expert from Grange Consultants. They handle all property development stages from concept to completion.


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