GST and Charitable Trusts When Can You Claim on Land and Building Costs
Tax & Compliance
Daran Nair
Director | CA, MBA
GST and Charitable Trusts: When Can You Claim on Land and Building Costs?
A charitable trust that is registered for GST can claim GST on land and building costs only where those costs are genuinely connected with making taxable (fee-based, non-exempt) supplies. To the extent the land and building are used for donation-funded or exempt activities, GST cannot be claimed.
GST Framework for Charitable Trusts
Charitable trusts often qualify as non-profit bodies and can register for GST even if their turnover is below the usual registration threshold. Once registered, however, they are subject to the same core rules as any other GST-registered person:
The trust must be carrying on a taxable activity – that is, an activity carried on continuously or regularly involving the supply of goods and services for consideration, and not being an exempt activity.
For non-profit bodies, all of their activities are treated as being carried on in the course or furtherance of a taxable activity, except to the extent they involve making exempt supplies.
Input tax is deductible only where goods or services are acquired for the principal purpose of making taxable supplies in the course or furtherance of that taxable activity.
Registration and charitable status do not automatically entitle a trust to claim GST on all of its expenditure. The critical questions are:
Is there a taxable activity involving supplies for consideration?
Were the land and building acquired for the principal purpose of making those taxable supplies?
When GST Cannot Be Claimed on Land and Buildings
Donation-Funded Religious or Charitable Use
Many charities, including religious organisations, use land and buildings primarily for activities funded by genuine, unconditional donations or koha. In GST terms:
Genuine donations are not consideration for a supply, so no taxable supply arises and no output tax is returned on those amounts.
Payments that are not linked to a particular service or right are treated as unconditional gifts rather than fees for a service.
Where land and buildings are used principally for donation-funded religious or charitable activities:
The acquisition is not for the principal purpose of making taxable supplies, because the core use does not involve supplies for consideration.
On that basis, GST on the purchase of land and most building or construction costs is not deductible; the trust cannot claim GST in full simply because it is registered.
Exempt Uses – Residential and Similar
GST is also not deductible where the asset is used to make exempt supplies, such as:
Long-term residential accommodation in a dwelling.
If a charitable trust's land and buildings include clergy or staff housing, long-term rental units, or other residential accommodation, GST on those parts of the land and building cost is not deductible because it relates to exempt supplies or private, non-business use.
When GST Can Be Claimed on Land and Buildings
GST can be claimed where land and building costs are sufficiently connected with taxable supplies. For a charitable trust, typical taxable uses include:
Paid hall or room hire for weddings, conferences, community events or other functions.
A shop, café, bookstall or canteen operating on a commercial basis.
Commercial car-parking or short-stay accommodation that does not meet the conditions for exempt dwelling-type residential accommodation.
Other trading operations or fee-based services forming part of the trust's taxable activity.
In these cases:
The purchase of land and construction of buildings used for these activities are acquisitions for the principal purpose, or a real and identifiable purpose, of making taxable supplies.
Input tax can be claimed to the extent the land and building are used in the taxable activity.
Apportionment and Mixed-Use Situations
Often, the same property will be used partly for taxable activities and partly for donation-funded or exempt activities – for example, a complex where:
A main hall is used both for free or donation-funded religious services and for paid event hire.
Part of the building is a commercial café and part is a worship or community space.
In these mixed-use situations:
The trust must apportion input tax between taxable and non-taxable use, using a fair and reasonable method, for example floor-area, time-based or revenue-based.
The trust must monitor actual use over time and make change-in-use adjustments if actual taxable and non-taxable use diverge from the initial estimate.
For example, if 20% of the building's floor area is devoted to a commercial hall that is regularly hired out for weddings, a charitable trust may initially claim input tax on 20% of the land and construction costs and then adjust over time if actual usage shifts.
Legislative and Technical Underpinnings
The position above is supported by:
The statutory definition of taxable activity, which requires supplies for consideration and excludes exempt activities.
The principal-purpose and input-tax rules, which require a genuine nexus between the acquisition of land or buildings and the making of taxable supplies.
The exempt-supply provisions, which prevent input tax from being claimed on costs that relate to exempt residential accommodation and similar uses.
Inland Revenue's guidance for charities and not-for-profits, which makes it clear that GST is only claimable on expenses relating to taxable income streams and that assets on which GST has been claimed form part of the taxable activity and are subject to GST on disposal.
Case law on the principal-purpose test and taxable activity, which emphasises that expenditure must be incurred for the principal purpose of making taxable supplies, and not simply because it falls within a trust's general objectives.
Key Takeaways for Trustees
For trustees and advisers, the key practical steps are:
Map the intended and actual uses of any land or building, distinguishing clearly between taxable, donation-funded and exempt activities.
Test whether the land and building are acquired principally to make taxable supplies or principally to support donation-based or exempt activities.
Apply a fair apportionment method where there is mixed use, document the approach, and review it regularly.
Remember that claiming GST on land and buildings generally means GST will also be payable on any later sale, transfer, insurance pay-out or deregistration event.
Handled correctly, GST should neither disadvantage nor unduly benefit a charitable trust: GST can be recovered on genuine commercial or fee-based use of land and buildings, while donation-funded and exempt activities remain outside the GST base.
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Email: info@glca.co.nz
Phone: +64 9 522 5182
Website: www.glca.co.nz
Address: 97 Great South Road, Greenlane, Auckland 1051
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