IRD is currently trying to argue that when a rent to own scheme is signed up, this triggers a supply, therefore GST is due on the sale.
For example ABC Trust buys a property with the intention of doing up and selling. Is GST registered, and this is a continuous activity, so claims GST.
Then finds someone willing to buy the property by rent to own. This is a 3 year rent (normal tenancy) with an option for the purchaser to buy the property anytime during the tenancy or at the 3 year mark.
IRD are saying this is a Hire Purchase, therefore the full sale needs to be accounted for from a GST perspective in the period the option is signed!
You might think that your on the payments basis, but this doesn't matter, as any delayed settlement over $250,000 that goes over 1 year, turns you into the invoice basis for GST. So this means ABC Trust has to return GST on the whole sale, in the period the option is signed.
Further if we apply IRD's thinking (or lack of it) to Sandwich leases, it means that ABC Trust couldn't claim GST on the purchase as the vendor is not GST registered (ie buying from normal mum and dad), but has to return the full GST on the sale!
I'm not interested in anyone's opinions unless you know the GST and Income tax acts inside and out as I know this arguement by IRD sucks.
I would like to hear from anyone who has been audited by IRD and has come across this argument. Preferrable someone who has won by arguing on possession or something similar.
Cheers
Ross
For example ABC Trust buys a property with the intention of doing up and selling. Is GST registered, and this is a continuous activity, so claims GST.
Then finds someone willing to buy the property by rent to own. This is a 3 year rent (normal tenancy) with an option for the purchaser to buy the property anytime during the tenancy or at the 3 year mark.
IRD are saying this is a Hire Purchase, therefore the full sale needs to be accounted for from a GST perspective in the period the option is signed!
You might think that your on the payments basis, but this doesn't matter, as any delayed settlement over $250,000 that goes over 1 year, turns you into the invoice basis for GST. So this means ABC Trust has to return GST on the whole sale, in the period the option is signed.
Further if we apply IRD's thinking (or lack of it) to Sandwich leases, it means that ABC Trust couldn't claim GST on the purchase as the vendor is not GST registered (ie buying from normal mum and dad), but has to return the full GST on the sale!
I'm not interested in anyone's opinions unless you know the GST and Income tax acts inside and out as I know this arguement by IRD sucks.
I would like to hear from anyone who has been audited by IRD and has come across this argument. Preferrable someone who has won by arguing on possession or something similar.
Cheers
Ross
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