Meaning Of “Payment” for GST Purposes?

IRD has released a draft interpretation statement PUB00520 on what constitutes a payment for GST purposes. Deadline for comment is 10 September 2025.

When it comes to GST, “payment” can mean more than just handing over cash. Whilst payment is not defined by the Act, it is not entirely dependent on the physical passing of the cash and can be made in other ways. Knowing what qualifies as a payment helps determine when to account for GST on a particular transaction— whether you’re the supplier or purchaser.

Anti-avoidance rules:

When structuring transactions one must not forget the general anti-avoidance provisions, as they may void the transaction, especially when it comes to GST input tac claims.

Key Points:

Payment can take many forms: cash, property, services, shares, promissory notes, or payment by way of debt offset.
Borrowed funds used to pay a supplier count as a payment.
Merely delaying payment under a contract isn’t considered a payment, provided that the purchase price is left owing under the supply agreement.
Deposits under the contract count as payments.
Payments to intermediaries (e.g. lawyers) don’t count for GST until the supplier has a right to the funds.
Accounting entries may support the timing, but they aren’t always conclusive.

GST ON DEPOSITS IN CANCELLED LAND SALE AGREEMENTS

Inland Revenue recently addressed a common question in QWBA 25/10: Does GST apply to a deposit that the seller retains when a land sale agreement is cancelled?

The simple answer is NO — GST is only charged when there’s a supply of goods or services. If the agreement falls through before settlement, there’s no land transfer, and therefore no supply.

What Is the Deposit Then?

The deposit is not payment for ownership or an interest in the land. Instead, it acts as:

A partial payment towards the total purchase price, and
A form of security, assuring the seller that the buyer intends to complete the purchase.

How is Deposit Treated?

If the purchaser defaults, the deposit is forfeited as compensation — not as payment for land highlighting the deposit’s compensatory nature as opposed to a supply.
Even if the vendor breaches the agreement and cannot return the deposit, the vendor has not provided any supply for which GST would be charged. The purchaser’s inability to recover the deposit does not create a taxable supply.

IMPORTANT NOTE ON REVERSALS

If GST was accounted for by the vendor or claimed as an input tax credit by the purchaser before the agreement was cancelled, these amounts must be reversed in the tax period when the cancellation occurs.

August 2025