Important to get the GST component right
Generally speaking, GST on a property sale and purchase between two GST-registered entities results in a ‘GST neutral’ position for both the seller and the buyer. It’s essential that the sale and purchase agreement contains the correct wording, particulars and information in respect of the GST position of the parties to the agreement.
If, however, the parties to the agreement have not correctly recorded their respective GST positions, it can result in a situation where a GST liability is triggered. This can mean the seller would effectively receive a 15% reduction of the contracted purchase price (as they may have to return 15% of the purchase price to Inland Revenue). Or, a buyer may end up having to pay an additional 15% on the purchase price if the agreement turns out to be ‘plus GST’.