Skip to main content
OP 24/01
07 Jun 2024

Commissioner’s operational position on the GST treatment of landlords supplying properties for use as transitional housing

The Commissioner has released three public rulings on the GST treatment of supplies of properties by landlords to organisations for use in the Transitional Housing Programme of the Ministry of Housing and Urban Development (HUD): BR Pub 24/01, 24/02 and 24/03 (the Rulings).

This Operational Position gives guidance on how the Commissioner will apply the technical view set out in the commentary to the Rulings where landlords have taken incorrect tax positions in previous GST periods.

In brief:

  • Where previous supplies made by landlords were incorrectly treated as taxable supplies (but were exempt supplies), the Commissioner does not expect assessments to be corrected to reverse input tax deductions if the landlord is subsequently making taxable supplies because of the organisation’s new arrangements.Doing so would only result in input tax deductions in a later period because under the arrangements covered by the Rulings there will have been a permanent change in use from making exempt supplies to making taxable supplies.


  • In other situations, landlords should consider how the GST legislation applies to their individual circumstances and contact Inland Revenue (by sending a message in MyIR with “transitional housing” in the subject line) or their tax advisor to determine if they may have taken incorrect tax positions.Depending on the situation, several provisions of the GST legislation could be relevant, as referred to below.

The Rulings and Commentary on the Rulings

The Rulings concern the GST treatment of supplies made by landlords to organisations who have entered a Transitional Housing Services Agreement with HUD from 1 July 2023 (the new THS Agreement).  These supplies may or may not be exempt supplies depending on the type of property and what is offered to occupiers of the properties.

The commentary to the Rulings also discusses matters that will be relevant to determining whether the supply by landlords will be an exempt or taxable supply generally, not just for arrangements involving the new THS Agreement.  The commentary is therefore relevant to other situations. It is possible that the supplies of properties to organisations for use in providing transitional housing may be either taxable or exempt.  The exemption is for supplies of leasing for the purpose of accommodation in a dwelling (under s 14(1)(cb) of the Goods and Services Tax Act 1985 (the GST Act)).  It will sometimes be difficult to determine whether something amounts to a “dwelling” and what the purpose of the leasing was.

Possible incorrect tax positions include landlords deducting input tax for acquisition or development costs for buildings that are dwellings.  In this situation, leasing the building to organisations should have been treated as an exempt supply.  Another possibility is landlords may have acquired buildings in transactions which were incorrectly zero-rated as the buildings were not intended to be used to make taxable supplies.

The Commissioner’s operational approach

Following publication of the Rulings, the Commissioner expects landlords to comply with the Commissioner’s view of the law as set out in the commentary when taking tax positions.  This will mean where BR Pub 02 and 03 apply (ie there is no exempt supply involved), supplies of properties by landlords to organisations should be treated as taxable supplies (where the organisation has not chosen to provide the Household with the relevant quiet enjoyment rights in their Housing Agreement).  Output tax and input tax should be accounted for on that basis going forward.

Some landlords may have taken incorrect positions in previous periods on whether or not supplies were exempt under s 14(1)(cb) of the GST Act.

One thing that many will need to consider is the application of s 21FB.  This would apply where use of the building has changed completely from making exempt supplies to making taxable supplies (or from making taxable supplies to making exempt supplies).   Amending assessments to correct tax positions taken in earlier periods may not result in material change for landlords who are making taxable supplies rather than exempt supplies.  This means that, for example, where landlords have completed GST returns on the basis that they were making taxable supplies of property when in fact they were making exempt supplies but they make taxable supplies going forward, reversing input tax deductions for property acquired would be followed by the need to make adjustments for a permanent change of use of the property in the first GST adjustment period in which the property is used for making taxable supplies.  This is the effect of s 21FB. 

In those circumstances, taking action to reverse input tax deductions would result in similar amounts of input tax deductions being allowed in a subsequent period.  Therefore, although the assessments for prior GST periods might not be correct technically, the Commissioner will not be devoting resources to identifying incorrect returns and amending such assessments for previous GST periods to correct input tax deductions or incorrectly returned output tax.

For other similar arrangements, not covered by the Rulings, landlords should discuss the situation with Inland Revenue or their tax advisor to determine if they may have taken incorrect tax positions.  To contact Inland Revenue, send a message in MyIR putting “transitional housing” in the subject line so that it will be answered by the personnel familiar with the issues in this area.

For some situations, a voluntary disclosure may be a suitable option to reduce the risk of penalties.  This would include where landlords have not returned output tax on what should have been treated as taxable supplies (including disposals of property) because they assumed the supplies to have been exempt.

Relevant GST Act sections

How the GST Act applies to individual circumstances will vary.  The following provisions may be especially relevant where landlords have taken incorrect input tax deductions for acquisition or development costs for a building:

  • s 21FB – where the use of a building in making taxable supplies, as a percentage of total use, permanently changes, an adjustment according to a formula should be made.  This can result in an adjustment equal to 100% of the total input tax for the building.
  • s 5(23B) – if a building was acquired in a zero-rated transaction, and after applying the guidance in BR Pub 24/01 the landlord becomes aware that the transaction should not have been zero-rated, the landlord may be deemed to make a taxable supply of the building (for market value consideration) on the date when this error was discovered.
  • ss 5(16), 5(16B) and 5(16C) – the sale of a building may be treated as a taxable supply if input tax was deducted on acquisition or its acquisition was treated as zero-rated, and it is not being used in a taxable activity when it is sold, or its non-taxable use has increased and s 21FB has been applied in contemplation of sale.
  • S 91 – an election made before 1 April 2025 to pay output tax equal to inputs incorrectly deducted will mean the sale of a building will not be a taxable supply if the building was not acquired for the principal purpose of making taxable supplies and has not actually been used for making taxable supplies.