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Inland Revenue

Tax Policy

GST-application of the definition of “land” to leases

(Clause 135)

Summary of proposed amendment

The GST legislation is to be amended to clarify the application of the exclusion of “commercial leases” from the definition of “land” so that an assignment of a commercial lease will not be covered by the exclusion.

Application date

The amendment will apply from 1 April 2011.

Key features

Under the current GST legislation, the definition of “land” excludes commercial leases which do not involve a large proportion (more than 25%) of consideration being paid at any one time.

There has been some uncertainty about whether assignments of leases are covered by the exclusion. Consequently, the bill clarifies that a transfer of a lease does not exclude the lease from the definition of “land” for GST purposes.


To prevent “phoenix” fraud transactions, the Taxation (GST and Remedial Matters) Act 2010 introduced rules that require supplies between registered persons that involve land to be charged at the rate of 0%. To reduce any uncertainty regarding which transactions must be treated as involving “land”, and to ensure that most land-related supplies that could give rise to “phoenix” fraud concerns are zero-rated, the Goods and Services Tax Act 1985 was amended to include a new definition of “land”.

An assignment of a lease involves an assignee paying for the right to take over the lease. Therefore, this type of transaction could potentially be used for “phoenix” fraud purposes. As such, it is important that assignments of leases are covered by the definition of “land” and are subject to the zero-rating rules.