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Lenders,GSTand Trading Trusts

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  • Lenders,GSTand Trading Trusts

    Hi Guys,

    Had an interesting thing happen today with a loan proposal I got through.

    This Loan was for a property purchase in a trading trust and is a low doc

    Reg valuation 355K PP 281K
    S & P agreement showing inclusive of GST

    The loan was arranged by my broker at Capital, thru Kiwi home Loans as the arranger (Hanover Group) of the finance from GE Custodians, there was a number of acceptances that I needed to sign off on, which in itself is not a problem, but there was one that I had not seen before, it made me nominate my GST position. I spoke to a number of people about this and none had not seen it before.
    The nomination went as follows:
    1) I/We are not registered for GST
    2) I/We are registered for GST but the security property is not used for the purposes of a taxable activity.
    3)I/We are registered for GST and the property is used for the purposes of a taxable activity, namely......
    Has anyone else seen this?
    I had to nominate the 3rd position.
    And by doing this the Lender reduces the loan by the GST amount, which I have to top up and claim back from IRD, which I always do any way.
    This is the first time I have seen this and it certainly reduces my GST advantage which I can honestly say I am none to pleased about.
    Has anyone else experienced it and is there any way of avoiding it in the future (where did I go wrong).

  • #2
    Hi Hamish
    I have had this happen too - also with GE Custodians - its actually good risk management practise from the lenders point of view but Id also like to know how to avoid it


    • #3

      Same paperwork to sign with GE for me also. I had not previously purchased in my GST entity so cant say when this question became common practice.

      It does seem a common sense approch by the finance comp.

      All the best,



      • #4
        Hi Hamish!
        Well done - deal looks sweet, classical 20%+ under RV, very impressive!
        Care to share more details? Has RV been commissioned by you or the seller? Didi it come off one of your Wellington signs? Did you pay $20k more?
        Pity we could not talk for a bit longer last time I rang you but that's OK.
        Loans to GST registered entities should always be based on a GST exclusive amount and entity should always declare its GST status, so the fact that your trading trust could get loans based on a GST-inclusive price is an exception, not a rule.
        The reason is very simple - IRD is first in a line to get GST repaid if bank will need to handle a sale of your property and lenders have to repay GST for you. So effectively bank is giving you not a 100% but somewhere around 110% loan.
        How to avoid it? Hmmm, that's a VERY interesting question indeed... Any ideas?
        Don't argue with idiots, they'll drag you down to their level and beat you with experience.


        • #5
          It's quite common. The lender realises you are going to claim the GST back so their security is reduced by that amount. They have to look after their shareholders interests, and making prudent lending decisions is all part of that process.
          Gimme $20k. You will receive some well packaged generic advice that will put you on the road to riches beyond your wildest dreams ...yeah right!


          • #6

            I have experienced this as well using GE.

            Interestingly I am not sure why but it was by passed even though our circumstances were very similiar i.e using GE, Buying in trading trust etc. The GE broker we dealt with was able to slip this past....

            I cant actaully recall whether we listed GST resgistered or not but have told GE Broker that our intent is trading etc and he was fully aware of the situation and purchasing entity.

            It may be that we have been able to do this on a couple of occassions but that it wont last. (We have been loaned the full purchase price amount)

            It could be a case of how its arranged and what broker used?