Commercial Investment - GST & CGT

[bwclu]

Hi all,

I am new to commercial investment and is considering investing in commercial / retail properties.

I have a couple of questions and wondering if you would kindly provide some advise.

1. Looking at commercial properties and prices are excluding GST. Since I am not GST registered (not a company), is there anyway I don't have to pay GST?

2. If I have to pay GST (which I assume is the case) and not able to form a LAQC, when I sell this commercial property, the new buyer will need to again pay me amount + GST. Can I keep this GST amount or the GST amount need to goto IRD?

3. Does all transactions in commercial / retail buildings occur CGT? Regardless how many transactions we conduct? If that's the case, what percentage is CGT?

4. What are the key differences between investing into Commercial vs Residential properties? Other than GST/CGT/higher body corp fee? Would you please highlight some major differences?

thanks so much!

[David_W]

Welcome to PT Bwclu,

Whilst I don't profess to be a commercial property guru (owning only half a commercial property at the moment), I think I can shed some light on your questions quickly:

1) You must pay GST, as what is relevant is the Vendor is GST registered and as is obliged to charge GST on the sale.
2) You cannot keep the GST - why? This money is the Government's money, not yours. You are merely the conduit to collect this money (GST amount) for them. You may be able to zero-rate an onsale to another GST registered entity as supply of a going concern. Seek specialist legal advice from a skilled tax professional here please, to avoid an expensive heartache!
3) There is no CGT in NZ. That is why it is called the Income Tax Act. What happens is that if you have a "purpose of resale" at the "time of acquisition" of the subject property, then you are no longer deemed to be holding property on capital account, but on revenue account. Property held on revenue account, you must pay tax on any gains (but conversely you can claim for any losses too - fair is fair).
4) Other key differences - vital to have a great lawyer (lease document is so important for rent reviews, tenancy length ...etc), outgoings paid by tenants (generally), more stable tenancies, banks generally require more cash input yourself (often only lending 65% of lower of purchase price or registered value)...

Hope this helps you a bit bwclu.

Cheers
David

[JohnL]

One then about commercial (particularly for a new investor), is the vacancy risk is different from a residential house. You need to be able to support the commercial property loan for up to a year as that is how long it can take to find a new tenant!!!

If you can't do that and you aren't experienced, then I think you are taking a huge risk (just a personal opinion).

John