2014 amendment introduces a zero-rating rule that applies to 'tooling costs' for specialised tools that a NZ manufacturer charges to a non-resident purchaser.

Section 11(1)(p) of the Goods and Services Tax Act 1985

Under the previous rules, manufacturing tools that were separately charged to a non-resident, usually could not be zero-rated (because they never left New Zealand). This was so even if they were only used to manufacture exported goods, with no actual consumption occurring in New Zealand. This result was contrary to the general "destination principle" in the GST rules which states that only domestic consumption should be subject to GST.


A new section 11(1)(p) introduces a zero-rating rule that applies to what are known as "tooling costs". These are costs for specialised tools that a New Zealand resident manufacturer charges to a non-resident purchaser. International practice dictates that these tooling costs are charged separately to ensure that the purchaser retains title to the tools necessary to fulfil their order. This practice is designed to stop a manufacturer using tools to create counterfeit goods once an initial contract has been fulfilled. It is not usually intended that the purchaser will take delivery of the tools, so they generally remain in New Zealand.

The tools are only used to make exported products that are themselves zero-rated. However, because the tools are not exported, manufacturers are required to charge GST on any tooling component of an order.

Key features

Under section 11(1)(p), goods are zero-rated if they are tools used solely to manufacture goods that will be for export from New Zealand and are supplied to a non-resident that is not a registered person. This means that, if the goods being manufactured are in part for the domestic market, they will not qualify for zero-rating. Equally, if the non-resident is registered, the goods will be standard-rated, in the expectation that the registered recipient will be able to claim any GST charged as an input tax deduction.

The wording of this provision is consistent with corresponding provisions in Australia and Europe, and is designed to align New Zealand with international standards.

Application date

The amendment applies from 1 April 2014.