Should I be GST registered?

[chuckee]

Hi,
I'm a beginner when it comes to NZ property investment, and about to make my first offer on a section on which I would place a cheap new-build house to rent out.
My question is - are there advantages to becoming GST registered? e.g. would I be able to claim back the GST that is charged on the purchase price of the new-build house? Are there disadvantages?
I bought a book on NZ property investing which strangely doesn't cover the topic at all!

Thanks

[ivanp]

Residential property investment in NZ is exempt from GST, meaning in particular that you can't claim back any GST on the expenses, including the purchase price of the new house.

[drelly]

I'm not an accountant, so you should check with yours. But you can register for GST whatever you do. However, you'd need to pay GST on rent.

[ivanp]

I'm not an accountant, so you should check with yours. But you can register for GST whatever you do. However, you'd need to pay GST on rent.

Just google "gst ird rent" - the first two links point to IRD web site that explains clearly that there's no GST on residential rent.

GST can't be charged on the rent for a residential dwelling. A landlord can't claim any GST on dwelling expenses, such as maintenance, rates and insurance.

[Rosco]

Hi,
I'm a beginner when it comes to NZ property investment, and about to make my first offer on a section on which I would place a cheap new-build house to rent out.
My question is - are there advantages to becoming GST registered? e.g. would I be able to claim back the GST that is charged on the purchase price of the new-build house? Are there disadvantages?
I bought a book on NZ property investing which strangely doesn't cover the topic at all!

Thanks

Hi Chuckee,

As a long term hold, residential property investor, there is no GST. So you can't claim GST on the purchase or other costs. There is also no GST to pay on residential rent received.

Property traders and commercial investors have GST to account for, unless they are under the threshold and choose not to be registered.

Ross

[drelly]

Just google "gst ird rent" - the first two links point to IRD web site that explains clearly that there's no GST on residential rent.

Yeah but it depends on your intentions. If you're planning on selling it after a short period of time, then you will need to pay GST and tax on any capital gains. Not sure if you'd need to pay gst on the rent.

[epsomtax]

Yeah but it depends on your intentions. If you're planning on selling it after a short period of time, then you will need to pay GST and tax on any capital gains. Not sure if you'd need to pay gst on the rent.

As per comments above, residential rental is a GST exempt activity, so even if one is GST registered this activity is not included in GST taxable supplies on the GST return, ie no GST is paid, and one cannot claim GST on any expenses related to the rental. Instead, this income/the expenses are declared in the end of year tax return

Regards
Epsomtax.com Limited
Property Accountants, Auckland

[drelly]

As per comments above, residential rental is a GST exempt activity, so even if one is GST registered this activity is not included in GST taxable supplies on the GST return, ie no GST is paid, and one cannot claim GST on any expenses related to the rental. Instead, this income/the expenses are declared in the end of year tax return

Regards
Epsomtax.com Limited
Property Accountants, Auckland

How does it work if you buy a property to trade and rent it for 6 months in the process of renovation before selling it?

[epsomtax]

How does it work if you buy a property to trade and rent it for 6 months in the process of renovation before selling it?

The rent is still a GST exempt supply if it is residential in nature, as are any expenses related to that. This is a common area of confusion with respect to rental residential property

Regards
Epsomtax.com Limited
Property Accountants, Auckland

[ivanp]

And by the way, if you've started with intention to trade (and therefore got GST return), once you decide to hold it rather then sell, you'll have to repay all the returned GST back to IRD.

[Rosco]

How does it work if you buy a property to trade and rent it for 6 months in the process of renovation before selling it?

Hi drelly,

In the past, we used to apply the Lundy rules and do an annual GST adjustment. This wasn't the GST on the rent received, but it did account for the change of use, that that trader had claimed all the GST for a taxable activity, but was using it for 6 months for a non GST activity.

From 1/4/11 the rules changed(for new trades that are rented), and there is now a new GST adjustment required. The first adjustment is not required until 31/3 of the second year. So start renting 20/10/14, first adjustment not required until 31/3/16.

So in your example, as you have sold before the first adjustment is required, then you would have no adjustment.

And you would definitely not return any GST on rent received!

Over the last year, we have tidied this up for some new clients. There old accountant returned all the GST on rent for a number of years, and we then reassessed with IRD to nil and just the annual Lundy adjustments. For one client we got back over $50,000 in GST incorrectly paid to IRD!

Ross

[drelly]

Thanks for the clarification. Several years ago, I did a trade where I was thinking about renting it out short term before selling and the accountant at the time told me I would need to pay GST on the rent.