GST implications

[jace the ace]

Can anyone answer the following questions for me please.

1-If GST wasn't claimed from IRD when an orchard was purchased for business.Does that mean GST is not payable to IRD when the orchard is sold.

2-Is it correct that if the orchard was deemed to be a hobby,then they can't register for GST & shouldn't charge GST on that income.

Thanks

[Tan]

1-If GST wasn't claimed from IRD when an orchard was purchased for business.Does that mean GST is not payable to IRD when the orchard is sold.

True. If you choose to register, you can claim GST on the orchard, and then must pay it when selling. If you choose not to register, there's no issue.

2-Is it correct that if the orchard was deemed to be a hobby,then they can't register for GST & shouldn't charge GST on that income.

Hobby or not is irrelevant. The GST income threshold is $60,000. If you earn less than that there is no need to register, but you can if you want. If you earn more than that, you have to register.

[Green Fish]

The hobby point could, possibly, be relevant:

http://www.legislation.govt.nz/act/public/1985/0141/latest/DLM82290.html

Jace the Ace: Did you claim GST deductions while operating the orchard?

[jace the ace]

Yes GST deductions were claimed on expenses & GST paid on income.
No GST was claimed on the purchase price.

[calmone]

If a business is purchased as a going concern there is no GST applicable, so no claim can be made. The same when selling, however in your case I would not be sure.

Did you buy a business, or a property? That would determine the outcome.

[jace the ace]

It wasn't purchased as a going concern.
What difference does it make wether it was purchased as a business or as land that was then used as a business?
Either GST will be payable on sale or not.

[cube]

No GST is payable on sale/purchase of a going concern.

You say GST "wasn't claimed" were you in a position to claim it, but didn't (assuming it wasn't a going concern), or were you not in a position to claim it (not GST registered)?

That may have a bearing.

Generally, it certainly is NOT true that if GST is not claimed on purchase it doesn't have to be paid on sale - property traders have been caught out with that!

cube

[jace the ace]

Under what conditions would GST be payable upon sale,when no GST was claimed when land(to be used as taxable activity) or business was purchased(not as a going concern) with no GST claimed.

[Perry]

When a taxable activity by a GST registered
entity is later engaged in, using that land, then
that land is sold separate from the said going-
concern business?

[Green Fish]

I agree.

If X buys a property and then sells it, and if no "taxable activity" is involved, then there is no GST, either way.

If the purchase of the property did not involve any taxable activity (eg, the purchaser was not a trader, or a developer), but if, after the purchase, the purchaser then conducted a taxable activity on the property (eg, orcharding), then any subsequent sale becomes something done in connection with the ending of the taxable activity, so GST is payable.

The only way around this is to sell the property as a going concern. To do this, the seller and the buyer have to be registered for GST and must agree in writing that a going concern has been sold.

jace the ace: If the property is not yet sold, you have to ensure that it is sold on a "plus GST" basis. If you have already agreed to sell on the standard "GST inclusive" basis, then you might have a problem.

[Tan]

Can you confirm that it was an orchard to start with, not just some land, which you later planted with trees, claiming the GST.

Thanks

[jace the ace]

The orchard was there when the land was purchased.

[Rosco]

Hi Jace the Ace,

I need to know a little more.

When did you buy the property? ie before 1986 has implications and there are some great exceptions for earlier property

Is the orchard a true taxable activity? Years ago you could claim the GST back on pretty much anything. But today, you cannot claim GST on a hobby or joke farm.

Does the same entity own the land, and operate the business?


Generally you will have to repay the GST on the sale, as it is a sale by a taxable entity. But you may also be able to claim the GST based on the purchase price, but watch all the rules.

If the business is not a true taxable activity, and purchased recently, then you might be able to argue that the entity shouldn't have been GST registered and IRD might agree to reassess all to nil.

Email me the answers on [email protected] and I might be able to help further.

Ross

[Perry]

Before 1986 has implications and there are some
great exceptions for earlier property.

Ross
Can you expand on that, please? I'm dimly aware
that there was some sort of 'register' [?] that one
could put non-GST properties into. Or something
vaguely like that. I have one (pre-1986) place
that fits the bill, but have never bothered to look
more deeply into the aspects involved, as it was
and remains a B&H - for now.

[Rosco]

Hi Perry,

For the 1986 and earlier exemption, I would need to re look it up to get the full information again.

But here was the situation a year or two ago. If you purchased a GST property before 1986 you could deregister (as long as income under $40k then - threshold now $60k) for GST, and rather than returning GST at fair market value, you could return GST on the original cost price.

This was a huge advantage to one of my clients who purchased for say $50k, claimed GST and now the block was worth $500k plus. The block was really just a personal lifestyle block with no taxable activity so maybe $1k or $2k income per year. So my client had to pay back around $6k GST rather than $56k!!

There are many blocks of land where GST has been claimed in the past, where today a new purchaser couldn't claim GST. Therefore when these people sell they won't be able to add GST, instead they will just be selling for a total GST incl figure. So they are just about always better to deregister now, repay the GST while they can get a low valuation, then they don't have to pay GST on the sale, when the property could have doubled in value.

Ross