GST on sale Price ? - Need accounts/legal advice please

[candice123]

Dear Team, need some help please.


We are not gst registered however, have an LTC company and sold one of our residential investment properties at an auction/ in fact after auction by negotiation and , settling in late December.


I am referring to the attached sheet to S&P agreement (Scheduel 1 - GST Information see clause 15.0) with 11 statements .


I came to know only now the statement 3 is circled 'Yes' for "the purchaser who bought is GST registered under the GST Act or will be so registered at settlement" . Yes is circled round and initialled by the purchaser . We (vendor) have not initialled that statement. However, we have initialled the bottom right hand corner of the page. The only statement circled in the whole page of 11 statements is only the item no 3, and statement 4 (a) and statement 4(b) is completed with the purchasers details (a) fullname: zzzzz and or nominee (b) with address.


On the top page of S&P, under Conditions of Sale: Item 1.2 states "GST will be payable in acordance with the statement of the purchase price price in the Memorandum of Contract ' . 1.3 The Gst date Is: is left blank.



Would you clarify
A ) What does all this mean
B) Are we to pay them/purchaser anything? GST?
C)We haven't signed bdeside the intial of purhcaser but we have signed on the bottom of the page right hand corner, who knows they circled that bit after? can't remember seeing this statement circled then of course I would have checked with a lawyer/accountant before signing.


Await for your feed back.


Candy

[Xav]

Hi Candy,

What this means is that the purchaser is GST registered, so they are going to claim an input tax credit on purchase. So say the property sold for $460,000, the purchaser pays you $460,000 then claims $60,000 (15%) from the IRD. When they sell the property they pay 15% of the sale price to the IRD (that's a simplified version but you get the idea).

There are no implications for you here since you are not GST registered, except that it would have been a good idea for you to circle "no" for statement 1 (your GST status). You don't have to pay any GST.

[candice123]

Thanks for this Xav.

Just wondering how it affects on the same S&P contract under 'Further Terms of Sale ' it states under item 20 the following.

"The parties agree that the consideration under this agreement for the buildign is $x,xx,xxx and for chattles pursuant to the attached list is $xxx. The residual of the consideration paid for teh proeprty is the land component of the sale price.

The purchaser acknowledges that the purchase price includes the chattels as the value showing in the attached schedule of chattels".

Any comments please.

[Xav]

I'm not sure but I would guess that relates to what the vendor wants to try to claim depreciation on, rather than GST. Have you claimed any depreciation? If so you should run it by your accountant to see what the effect is on your clawback.

It could be related to GST if its a rural property? I presume it isn't as I would have thought the purchaser would need to get a dwelling and curtilage apportionment rather than simply dividing it between building/chattels and land.

[Rosco]

Thanks for this Xav.

Just wondering how it affects on the same S&P contract under 'Further Terms of Sale ' it states under item 20 the following.

"The parties agree that the consideration under this agreement for the buildign is $x,xx,xxx and for chattles pursuant to the attached list is $xxx. The residual of the consideration paid for teh proeprty is the land component of the sale price.

The purchaser acknowledges that the purchase price includes the chattels as the value showing in the attached schedule of chattels".

Any comments please.

Your purchaser is most likely a trader. So they buy properties, do them up and then sell them, hopefully at a profit.

A trader is normally GST registered and has to account for GST on the sale and purchase, as Xav has put.

The clause above is unusual for a trader. A trader cannot depreciate, and the clause above can help with depreciation on the property. So no point adding it for a purchaser, if it is a trader.

If the property was a rental property, and you have claimed building and/or chattels depreciation, then the clauses could affect the amount of depreciation recovery you have.


Ross

[Rosco]

Another option, if the house is a holiday home, could be used for short term rentals, commercial or something along these lines, then it could fall into the GST net. Therefore a long term hold investor could legitimately claim GST, but obviously would have to return GST on income and eventual sale.

Is your property something different like the examples above?

If so, you need to ring me and have a proper chat. There could be an opportunity for you to GST register!! NASTY STUFF, but then the sale would become zero rated for GST (unless purchaser has a clause stopping you from registering before settlement). So to keep this example really really simple, you might be able to claim some GST back (might get $60k just for example, but depends on other factors), then following Xav's figures, then sell for $460k GST inclusive which would get zero rated at $460,000. So you would receive $460,000 and not have to pay any GST back to IRD. So overall you would be $60k up.

As above, this is NASTY, as you really screw the purchaser out of $60k. Purchaser would probably argue this, and might go to court, in which case you could end up losing $60k in legal fees.

But it is good to know how things work, and what you can and can't do.

Ross

[Rosco]

Your purchaser is most likely a trader. So they buy properties, do them up and then sell them, hopefully at a profit.

A trader is normally GST registered and has to account for GST on the sale and purchase, as Xav has put.

The clause above is unusual for a trader. A trader cannot depreciate, and the clause above can help with depreciation on the property. So no point adding it for a purchaser, if it is a trader.

If the property was a rental property, and you have claimed building and/or chattels depreciation, then the clauses could affect the amount of depreciation recovery you have.


Ross

This clause could give a big loss if they sold the house off, then built new units etc. But this would just be a timing loss, and overall would make no difference.

Ross

[Xav]

Yes, there are some real issues with the new GST regime from a practical point of view.

Rosco's post above (the NASTY one) assumes that the purchase price is inclusive of GST. For any GST registered people out there, you can avoid this risk by making your offer plus GST (if any). It makes no difference to the vendor either way, though sometimes they may take some convincing of that since they probably won't understand how GST works.

[Rosco]

Or if you are a trader, you add a clause that the vendor cannot GST register before settlement.

Ross