GST Implications on Retained Deposits in Cancelled Land Sale Agreements

• GST does not apply to a deposit retained by the seller in a cancelled land sale agreement because no supply of land or other supply is made in return for the deposit.
• If GST output tax was paid by the seller or a GST input tax credit was claimed by the buyer before cancellation, these amounts must be reversed in the period of cancellation.
• A deposit in a land sale agreement serves as a guarantee of performance and is typically 10 percent of the purchase price.
• If the sale proceeds, the deposit is credited to the buyer as part of the purchase price. If the sale is cancelled due to buyer default, the deposit may be forfeited and retained by the seller.
• If the sale is cancelled due to seller default, the deposit must be refunded to the buyer.
• Key questions for GST applicability include whether there is a supply of goods or services and if the deposit is payment for that supply.
• The document addresses these questions and outlines the GST consequences when a land sale agreement is cancelled and the seller retains the deposit.

Source: taxtechnical.ird.govt.nz

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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