Do I have to pay GST on rent?

[Niall]

Also just to clarify a little further, there is NO GST to pay on the rental income received, but a GST adjustment is still due, to account for the change of use of the property.

Rosco,

You are talking about paying GST on the depreciation you cannot claim. Correct?

All the best,

Niall

[Dean@Massiveaction]

Dead right Niall, it is a ridiculous rule!!
Pay GST on notional depreciation you neither have to calculate nor claim. :-)

[Perry]

Boy - is this confusing?

Residential rentals and GST is one of the legacy
lies from the reds, the comrade commissariat
of Labour.

GST was promoted as a tax on the final user.
But when the fine print was looked at, residential
rental-providing PIs auto-politically-magically
became the end-users of the rentals that were
occupied by the real end-user-tenants.

I.e. the PI paid GST but was statutorily barred
from either recovering it or on-charging it. That's
what happens when socialists are in charge. Deep,
dark dishonesty and monstrous malfeasance.

Reading back, the issue seems to have got mired.
If the entity that is providing a product or service
is GST registered, it must pay GST on income and
can claim GST on expenses. Unless those expenses
relate to residential rentals. If so, neither can it
charge GST on residential rentals.

Belaboured by lies, beguiled by BS.

[cube]

Another oddity of the Lundy calculations is that you pay GST on the notional depreciation on the LAND, whereas in other rules, land doesn't depreciate!

Some accountants 'step around' the Lundy rules by making the GST adjustment 1/9 of the rent, and working everything out properly when the property is sold.

If the IRD find out (or you tell them) that you now intend to keep the property long term, they will say that there is a 'deemed sale' (AKA "Can we have our GST back please"), meaning that you have to pay back the GST you claimed on purchase - could be a bit of a hit to the old cash flow.

cube

[Perry]

Deeming, deeming, deemed!

If the IRD find out (or you tell them) that you now intend to keep the property long term, they will say that there is a 'deemed sale' (AKA "Can we have our GST back please"), meaning that you have to pay back the GST you claimed on purchase - could be a bit of a hit to the old cash flow.

There's that dastardly deeming device, again.
CIR: more tax revenue, if you please.

[McDuck]

Boy - is this confusing?
GST was promoted as a tax on the final user.
beguiled by BS.

Firstly, it seems to me that the concept of user pays is more of a capatilist idea.
Secondly, landlording falls into a historical class that is not a good or a service.
Thirdly,The GST clawback has only been given the OK in this case because the person is a trader, not a landlord.
The fact that the trader was in the used house trade is beside the point.
The fact that the trader chose to keep his/her stock is the only point.

You need to think like a merchant not like a landlord.

[Perry]

Secondly, landlording falls into a historical
class that is not a good or a service.

Right. So I just tell the CIR that my residential
rentals are neither a good nor a service and
therefore I can ignore GST. Can I have your
contact details to refer the CIR to, please?

[McDuck]

And if you won that one in Court, they would want to bring in a capital agins tax or something like that.
They will get a cut, no matter what you name it.

Good point though.

[Perry]

Agreed. But in the case of residential rentals
they get two cuts, rather than one. I.e. they
get GST (from a non-end-user/consumer),
plus they get income tax.

It's our job to fair (and away someplace)

[Judge]

Ok, i have read the Lundy case and it appears that i was conceptually wrong. While GST is payable while a property is rented, it is not GST on rental but rather GST on depreciation, which works out to be approximately one fifth of the GST on rental. So, essentially, if i got it right there are two separate cases relating to change of use:

Case 1
Someone buys a property for the purposes of reselling it at a profit and then decides to keep the property long term. In this case that person has to make a change of use declaration, and make a one off GST adjustment effectively returning the GST he/she claimed when they bought the property. Once this change of use is processed by the RID, no GST is payable on the rental.

Case 2
An investor buys a property for the purposes of reselling it at a profit, but is unable to sell it immediately and decides to tenant the property while it is being marketed or while the market improves. In this situation the investor does not have to make a change of use declaration. The use remains the same (i.e. the property is still held with the view to selling it) but in the interim it is being applied to a different use.

Without going into the legal jargon, the GST implications in this situation would be as follows:
a) No GST is payable on the rental;
b) GST is payable on the depreciation of the total value of the property (excluding chattels). So if a property is worth $500,000 then the depreciation of the whole amount is taken into account even though land does not depreciate. For the purposes of this exercise it is assumed that it does depreciate.
3) The investor can not claim back GST on any Property Management fees incurred for the purposes of renting the property;
4) The investor can claim back from the IRD 75% of the GST payable on rates and insurance.

This is how i read the case. I am not a tax person, so not sure if it is 100% correct, but hopefully it is not too far off.

It appears that once all the number crunching is done, the investor is much better off in this Case 2 scenario. The only portion of the case i did not understand is what happens on sale of the property. It appears to me that the 25% of GST that the investor was unable to claim will somehow be credited back as part of the GST return, but i am not sure. May be someone can clarify.

Anyway, hopefully the above summary is correct and clear enough for a lay person to understand.
Judge

[McDuck]

Agreed. But in the case of residential rentals
they get two cuts, rather than one. I.e. they
get GST (from a non-end-user/consumer),
plus they get income tax.

It's our job to fair (and away someplace)

They would say that if they just did iIncome tax, then it would be higher for both non consumption people and consumption people.
They think of GST as just another (directed) layer upon the main tax scale.

But my point about landlording, was that renting out land is sort of half consumption.
The Landlord only gives over some of his rights, and the lease only buys you some rights.
So it's sort of half consumed.
Hence the problems with logical GST classification on it.

Ps Judge.

I'm going to have to take a few days to think about all the issues related to the Lundy aspect.

[Perry]

But my point about landlording, was that renting out land is sort of half consumption.
The Landlord only gives over some of his rights, and the lease only buys you some rights.
So it's sort of half consumed.
Hence the problems with logical GST classification on it.

So, when one hires an electrician, as the electrician's
skills are utilised and the electrician isn't consumed in
any meaning of the word, well . . . .

What then?

After all, the sparky's bill will have GST in it, wont it?

[McDuck]

So, when one hires an electrician, as the electrician's
skills are utilised and the electrician isn't consumed in
any meaning of the word, well . . . .
What then?
After all, the sparky's bill will have GST in it, wont it?

Now you are talking about the time that is consumed...that's labour.
You fully consume his time. (Well you get what you pay for skills wise).
An Electrician is a person, and a person can not be owned and therefore can not be considered as goods.
You know this.
but I see what you are getting at.

[Perry]

An Electrician is a person, and a person can not be owned
and therefore can not be considered as goods.

But what the cannot-be-owned provides as a service can
be considered as goods, yes?

So what the cannot-be-owned rental provides as a service
can be considered as goods, no?

[McDuck]

But what the cannot-be-owned provides as a service can
be considered as goods, yes?

So what the cannot-be-owned rental provides as a service
can be considered as goods, no?

Good try.
A rental can be owned.