We are recognised as authorities in our specialised fields. We publish newsletters with informed opinions that are free for you to subscribe to.
Tax Updates: 28 July 2025
Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at richard@gilshep.co.nz.

Reduction in FBT interest rate
Effective from the quarter commencing 1st July 2025 and for subsequent quarters, the rate of interest that applies for fringe benefit tax purposes to employment-related loans is reduced from 7.38% to 6.67%.
GST on deposits retained QWBA
Inland Revenue (IR) has recently released QB 25/18, which endeavours to answer the question, “Does GST apply to a deposit the seller retains in a cancelled land sale agreement?”
The QWBA (Questions We’ve Been Asked) is an easy 13-page read, with the primary answer being that no, GST does not apply to the deposit because the seller makes no supply of land or any other supply in return for the deposit.
As a secondary issue, the QWBA goes on to explain that if the seller has paid GST output tax or the buyer has claimed a GST input tax credit before the agreement was cancelled, then any amounts returned or claimed will need to be reversed in the period in which the agreement is cancelled (section 25 GSTA).
A key statement within the QWBA to remember is that GST is a tax on transactions, not a tax on receipts or turnover. It can only be charged if a supply of goods or services exists (or is deemed to exist). The first step, therefore, is to identify the supply.
When applying this key principle to a land sales agreement, the intended supply here is naturally the land. Consequently, if the agreement is cancelled due to the buyer’s or seller’s default, then settlement and registration do not take place. Without registration, no transfer of legal ownership occurs. In this situation, there is no supply of the legal interest in the land as intended under the contract.
When considering the nature of the deposit payment, it is not a payment for the equitable interest in the land. Instead, it is a partial payment of the whole purchase price and a guarantee that the buyer will pay the full price upon settlement.
When a buyer defaults on the contract, the forfeited deposit compensates the seller for the buyer’s failure to pay the balance of the purchase price on settlement. If the seller then makes a claim for damages, they must deduct the deposit amount and can only claim the excess. The seller’s requirement to give credit for the deposit when claiming damages shows that deposits are compensatory. A payment that is compensatory in nature does not generally involve a supply and is not subject to GST.
In the alternative scenario where the seller defaults on the contract (perhaps a company that has gone into liquidation, with no funds available to repay the deposit), the seller has still supplied no land or anything else to which GST can attach. The buyer’s inability to recover the deposit does not change the fact that no supply exists for which the deposit was consideration.
Happy reading!
This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.
If you don’t know where to begin, want to talk through something, or have a specific question but are not sure who to address it to, fill in the form, and we’ll get back to you within two working days.
Find out about our team
Look through our articles
Read more about our history
Business Advisory Services
Tax Specialist Services
Value Added Services
Get in touch with our team
Want to ask a question?
What are your opening hours?
AML & CFT Act in New Zealand
Events with Gilligan Sheppard
Accounting software options
Where are you located?
Events