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  • 'or nominee'?

    Hi Guys,
    I have just read in the Main Report business newsletter the following information which will be critical for investors who are trading properties.

    “Recent legislation changes have given the IRD the opportunity to deny GST claims for zero rating on sale and purchase agreements if the purchaser at the date of signing the agreement was only identified as ‘or nominee’. The IRD can argue there is a transaction between the vendor and the nominee and between the nominee and the final purchaser. This naturally creates GST problems, as a ‘nominee’ is not likely to be considered a going concern for GST purposes. Our suggestion is where the end purchaser does not yet exist or is not decided at the time of writing the contract, then ‘nominee’ is used but is replaced by novation (scrapping the old contract and re-writing it) as soon as the purchaser is known or legally exists. The problem here is it requires the agreement of the vendor. Our best advice is you should get the purchaser sorted up front and avoid using ‘or noninee’” (www.woodrivers.co.nz)

    I have asked the writer of the article Jamie Tullock of Wood Rivers to clarify this for investors and his reply was as follows
    Residential property for investment as such does not have a GST componentas such so ‘as nominee’ is not an issu. If a property trader then GST is a factor so the use of ‘nominee’ may create an issue so best avoided”

    If you are trading in property then please seek advice on this from your own accountant.

    I thought you may like to read this,any comments are welcome!

    Cheers Scoob
    Last edited by Scott Miller; 15-02-2007, 03:57 PM.
    Scott Miller - Mortgage Broker
    Ph: 03 980 4541 M: 021 34 36 48
    AMS's website My email

  • #2
    Creat piece of information, Scott - thank you!
    Can you ask Jamie to clarify this:
    "For GST-registered entity S&P agreement is treated as INVOICE, where invoice date is uncoditional date. Is nomination considered to be a "transaction" if it happened BEFORE the unconditional date and nominated entity went unconditional?"
    Thank you in advance!
    Don't argue with idiots, they'll drag you down to their level and beat you with experience.

    Comment


    • #3
      Good post scoob.

      Originally posted by scoob View Post
      The IRD can argue there is a transaction between the vendor and the nominee and between the nominee and the final purchaser.
      But I wonder why this somehow does not surprise me?

      xris
      Last edited by xris; 16-02-2007, 11:00 AM.

      Comment


      • #4
        Hi Scoob, yes you are right the structure guru's are now warning us traders to not use and or nominee, simply pick the right entity from the start.

        So we now are all rushing off and forming trading trusts with innocuous non property sounding names!!
        Last edited by [email protected]; 15-02-2007, 04:56 PM.

        Comment


        • #5
          e.g. : MTBSW Trust - Money Talks (and so on) - having something like that on your mortgage documents should be hilarious!
          Don't argue with idiots, they'll drag you down to their level and beat you with experience.

          Comment


          • #6
            wow - I hit 800 posts mark, I guess around 700 were made on Massive Action forum! Cool! (sorry, Scott!)
            Don't argue with idiots, they'll drag you down to their level and beat you with experience.

            Comment


            • #7
              So is it still OK to be assigned a property to trade from a 3rd party and claim GST?
              We Buy Houses | Sell Your House Fast - No Fees, No Stress

              Comment


              • #8
                Ivan,
                Here is the answer to your question!

                Hi Scott,
                Thanks for the email. The way the IRD are looking at treating nominees would suggest that as soon as the contract is signed, even if it is conditional, the nominee is the "purchaser". I am not aware of the level of enforcement by the IRD but what I can say is that they can challenge the nominee as an owner and so that can potentially create problems. My advice is to avoid using nominee however it is not mandatory and you may see many nominee transactions go through with no action by the IRD.
                Cheers, Jamie

                Grant, I believe this answers your question too, but I would always recommend seeking your accountants advice.
                Scott Miller - Mortgage Broker
                Ph: 03 980 4541 M: 021 34 36 48
                AMS's website My email

                Comment


                • #9
                  One problem with this is the lag - it may be several weeks after you've written up the S&P that you make the GST claim, and what was OK at the time of writing the S&P is no longer OK when the IRD look at it.

                  cube
                  DFTBA

                  Comment


                  • #10
                    Hi Cliffy. As long as you aren't at the front of teh chain you're fine. I assume you mean someone else has a property under contract and they assign it to you and yo uonsell?? In your particular case as you ar like me, a trader, you MUST get the assignment done to your trading trust, not an "or nominee" entity.

                    Keep in mind that this is an issue raised by a couple of tax specialists, not IRD. It may come to nothing but "stay safe" is my motto.

                    I'm thinking of forming a trading trust called "Dean Letfus and or nominee". That would solve it!!

                    Comment


                    • #11
                      Originally posted by pooomba View Post
                      "Dean Letfus and or nominee". That would solve it!!
                      Very clever, I had you figured more for "In God We" Trust.

                      Comment


                      • #12
                        Umm, if the Unit is Zero rated, it means there is no GST to claim as it has already be "netted " off. You only pay the Nett amount and that is the figure on the Sand P.

                        Comment


                        • #13
                          I need to keep up with all the latest.

                          I am in the process of changing my trading trust name to Homebuyz, does that mean I need to put this on all S&P agreements that I intend to trade.

                          I may as well leave the trading name as it is because it is not so obvious that I am a trader.

                          FH.
                          Home Buyz
                          [email protected]

                          Comment


                          • #14
                            Depends on your structure - if you have a Corporate Trustee company, then the company's name goes on the S&P, but because it is buying for the Trust, the Trust can glaim the GST.

                            That's my understanding, but I'm battling with the IRD at the moment, so I may not be a good one to take advice from!

                            cube
                            DFTBA

                            Comment


                            • #15
                              I have gone to Garth Melville and his crew on this, so will let you know what he says in my situation, I am sure that most property traders will need to address this sooner or later.

                              FH.
                              Home Buyz
                              [email protected]

                              Comment

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