What if the vendor is not GST-registered

[fudosan]

I'm looking at a retail unit with ownership being name of a person. At this stage I don't know if the person is gst-registered or not. Say, if the vendor is not gst-registered, when I buy the property with tenant still in place, is it still zero rated? Or, do I pay GST and then claim it back later? What will happen to the vendor if he is not GST registered? Thanks

[learner]

Hi fudosan

If the vendor is not GST-registered. then the vendor cannot charge GST, but YOU would be able to claim GST as your input cost. This is because the purchase would be similar to purchasing a second-hand item from a non-GST person.

This is good in that the cost of the purchase is reduced for you.

[fudosan]

Hello Learner. Long time no "hear" from you.

I'm actually puzzled by the idea that you can get your purchasing cost reduced by being able to claim GST on either a vacant property or in this case from a non gst-registered vendor.

Since most if not all commercial properties that I have come across are listed as PRICE + GST, the end result is always the same regardless of the GST issue.

1. For zero-rated transactions, I pay the PRICE only.
2. If property is vacant, I pay the PRICE + GST and then claim GST back later.
3. For the current case, still I pay the PRICE + GST and then claim GST back later.

In all of above, the purchaser does not enjoy any advantage in price reduction. Am I missing something in my logic?

[learner]

Hi fudosan

I think you will find that a non-GST registered vendor will sell the property inclusive of GST as GST cannot be charged. The GST would have have been paid with the original purchase, but it was not claimable as the purchaser (now the vendor) was not GST registered.

If a GST-registered purchaser buys the property now, then the purchaser can claim one ninth of the price (which is GST inclusive, NOT price PLUS GST as you had thought).

This is explained on page 41 of the GST Guide (IR375) February 2008 edition, which details that second-hand goods include land, and if the vendor is not GST-registered, then you may claim the GST without a GST invoice, but that you must record the name and address of the supplier, date of purchase, description of goods, price paid etc.

However, to be doubly sure, check with someone who knows!

That is why if may be an advantage to purchase commercial property from a non-GST registered vendor, because the price should be lower than usual. Why a commercial property owner is not GST-registered is something I don't understand.

[drelly]

Hi Fudosan,

If the vendor is not registered for GST, they can't ask for price+gst. However, you can still claim GST.

[fudosan]

Silly me. I should have understood that non gst-registered vendor cannot charge price+gst. But what about vendor selling a vacant property? Same rule and therefore just price (but not +gst)?

[drelly]

I don't think it makes any difference if the property is vacant or not.

[fudosan]

But what about vendor selling a vacant property? Same rule and therefore just price (but not +gst)?

I meant GST-registered vendor selling a vacant property

[drelly]

Well, they can charge plus GST or not. It doesn't really matter. The point is that if they are GST registered, then they pay GST. You claim GST on whatever you pay, plus or inc.

[PropertyReturns]

My understanding is that a GST registered vendor selling a vacant building (ie 'not a going concern' in tax jargon) should be charging GST which then the purchaser claims back. A bit silly really.

Unless a transaction is very straight forward I always obtain written tax advise from a recognised GST specialist (about $150 from memory) to cover myself in any tax audit.

[fudosan]

Welcome to PT PropertyReturns. You have an interesting biography of "Lazy non-residential property Inverstor" Care to tell us more what you doing these days?

My understanding is that a GST registered vendor selling a vacant building (ie 'not a going concern' in tax jargon) should be charging GST which then the purchaser claims back. A bit silly really.

So the vendor issues a GST invoice, I pay PRICE+GST, and then claim back the GST?

What advantage do I have over a going-convern transaction where it becomes zero-rated?

I understand from reading commercial property books that there is advantage in buying vacant properties because of the GST issue. I am lost here. Can you shed more light on it?

Unless a transaction is very straight forward I always obtain written tax advise from a recognised GST specialist (about $150 from memory) to cover myself in any tax audit.

What kind of GST specialist are you referring to? Is your accountant not knowledgeable enough?

[spurner]

The big advantage of purchasing a property which is zero-rated is that you don't actually have to front up with the GST amount. Also, you don't have to claim the GST back from the IRD, and jump through all their hoops in the hope that you will get your money back.

My commercial purchases have all been zero rated fortunately. I recall reading somewhere that some proposed GST amendments may fix this situation.

P.S. Don't forget that your bank won't take into account the GST portion.

[PropertyReturns]

Sure. Have been in industrial investments since early 1990's. By 2005 the yields were getting stupid and we had no intention with selling but were made offers we couldn't refuse so ended up with cash in the bank. Term deposits had a much greater cashflow, which is what it is all about. Once yields become reasonable will buy again but we are not there yet. These days I spend my time reading, photographing, tramping and playing with my web site property returns dot co dot nz.

So the vendor issues a GST invoice, I pay PRICE+GST, and then claim back the GST? What advantage do I have over a going-convern transaction where it becomes zero-rated? Need to discuss you situation with your accountant, but most likely just the inconvenience and lost interest.

I understand from reading commercial property books that there is advantage in buying vacant properties because of the GST issue. I am lost here. Can you shed more light on it? I would never let tax determine strategy. Buy on cashflow or potential cashflow for the long term. Buying a vacant property from a non-registered vendor for tax reasons is not a good idea even if you do get tax back. More important to ensure you have a good property and tenant. I always buy for the long term.

What kind of GST specialist are you referring to? Is your accountant not knowledgeable enough? It is all about covering yourself. Just like you don't get an valuer to know the value of a property (you know the value by doing your own homework). You use the valuer's report to back you up and obtaining mortgages etc. You get written GST advice for the same reason even if you are sure you know what you are doing - to back you up.

[Davo36]

My understanding is that if the vendor is not GST registered then you say "Wahoo!" and jump in boots and all!

Say the property is being sold for $1 million. Then if the vendor is not gst registered, you only have to pay $1million. You then claim back 1/9 of that because you are GST registered. So you do in fact have a lower purchase price.

You don't agree to a zero rated transaction in this case because then you would lose the benefit.

You have to be sure though, so see an accountant before you commit yourselft of course.

David