• Login:
Welcome, Register Here
follow PropertyTalk on facebook follow PropertyTalk on twitter Newsletter follow PropertyTalk on LinkedIn follow PropertyTalk on facebook
Page 1 of 2 1 2 LastLast
Results 1 to 10 of 14
  1. #1

    Default GST, Capital Gains, Tainting.

    I am having an issue with a couple of properties owned in two LAQC's. We have had the opinion of an accountant but would also like to share this around and take comments and expertise.
    We have a property owned in XX Ltd with a recent valuation of $280k and a loan of $140k.We have owned it for 2 years and its cash positive. This was our first property purchase. We had no intentions other than buying an investment property in the hope it would be cash positive once rented. We registered XX Ltd for GST and then claimed GST on the purchase price which refunded us for the renovations.
    A year later we bought a property in YY Ltd. This property was a Buy and Hold from day one. YY Ltd is not GST registered.
    Our accountant is advising us that as we have claimed gst on the XX Ltd property the IRD will assume it was bought with the intention to sell at a profit and is therefore subject to capital gains tax. This then has the knock on effect of us being classed as traders which could taint our buy and hold activities. A solution our accountant has proposed is the following. "Sell" the XX Ltd property to YY Ltd (YY Ltd states the intention is to buy and hold), pay back the GST and also capital gains tax on the "sale price". Close down XX Ltd. This has the effect of closing down a "trading company" and we are left with a single Buy and Hold. This will chew up either our cash or our equity by having to pay GST and the Cap gains tax and in turn make our next purchase that much more difficult.
    We were hoping we could keep the XX Ltd property for 10 years or more which would cancel out any tax due if sold after that (obviously GST will still be due).
    Does anyone have other suggestions.

    Cheers

  2. #2
    Join Date
    Jun 2005
    Location
    Auckland
    Posts
    5,086

    Default

    Hi,

    If you intended to keep Property 1 as a buy and hold, you have made an illegal GST claim.

    If you intended to trade Property 1, the GST claim is OK, but selling it to YY Ltd will, in fact, 'prove' that you are a trader.

    Tainting belongs to the person, not the entity, so shutting down XX Ltd. will have no impact on your trader status.

    However, a single instance of trading may not be picked up by the IRD, and so long as you do keep Property 2 for a 'long' time, you may be OK. In this respect, maintaining the status quo may be your best option. (Keep under the radar)

    After a GST claim has been made, the IRD can sometimes check up on you to ensure that you are trying to sell the goods - if you aren't, they may rule for a 'deemed' sale, and ask for the GST back - in this case, when you do sell, there is no or little GST to pay.

    All this is lay-persons opinion, and if any of it is wrong, tough! (But if someone more knowledgeable can correct me, then please do, for everyone's sake!)

    cube
    DFTBA

  3. #3
    Join Date
    Jun 2005
    Location
    auckland New Zealand
    Posts
    5,236

    Default

    Unfortunately you shot yourself in the foot when you started. Registering a buy and hold entity for residential was most unfortunate. I would suggest you talk to Garth or Matthew and get specialist advice.
    I would say you are currently tainted and need to get it fixed urgently.

  4. #4
    Join Date
    Feb 2004
    Location
    North Waikato
    Posts
    651

    Default

    Your second purchase looks to be effected by the tainting. You also have the big problem of renting out long term a property you claimed GST on. Even if you pay GST on the rent or apply the Lundy ruling, the IRD doesn't like you keeping the 'trade' indefinitely.

    Definitely need to see an expert about your options.

    John

  5. #5
    Join Date
    Jun 2005
    Location
    Auckland
    Posts
    3,936

    Default

    Ouch!!
    Why would you have claimed GST on the initial purchase if your intention was not to trade it?

    As stated above see Garth or Matthew urgently to try sort this out. It will probably hurt but if you leave it longer the pain will be even more.

    Sorry I could not be of more assistance but you really need the Pro's to sort it out.

  6. #6
    Join Date
    Jan 2005
    Location
    Auckland
    Posts
    1,530

    Default

    You may have claimed the GST back on the original purchase because you intended to rent it as a holiday rental, but have since decided to rent it as a residential property. In this case you may be able to pay the GST on the current value and then rent it as a normal residential property.

    A good book on this subject is, "A practical Guide to Taxing Property Transactions" by Roger Thompson and Maurits van den Berg, published by CCH. It is not cheap but it is thorough.

    As others have suggested you need professional advice.

    Julian
    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!

  7. #7
    Join Date
    Jun 2005
    Location
    Auckland
    Posts
    3,936

    Default

    Quote Originally Posted by Julian View Post
    You may have claimed the GST back on the original purchase because you intended to rent it as a holiday rental, but have since decided to rent it as a residential property. In this case you may be able to pay the GST on the current value and then rent it as a normal residential property.Julian
    Yes possibly that is what they were up to.

  8. #8
    Join Date
    Jan 2004
    Posts
    1,545

    Default

    Quote Originally Posted by Julian View Post
    You may have claimed the GST back on the original purchase because you intended to rent it as a holiday rental, but have since decided to rent it as a residential property.
    Holiday rentals in a "dwelling" are GST exempt.
    Find The Trend Whose Premise Is False - Then Bet Against It

  9. #9
    Join Date
    Jan 2005
    Location
    Auckland
    Posts
    1,530

    Default

    Gatekeeper,
    I understand registering for GST is optional if turnover is less than $40,000 but is compulsory above this figure.
    Julian
    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!

  10. #10
    Join Date
    Jan 2004
    Posts
    1,545

    Default

    GST changes on Holiday Homes, Srvcd Apartments & Homestays

    ---------------------------------------------------------------------
    -----------

    Got this piece from the BDOSpicer 2006/07 Tax Newsletter


    Quote:
    The IRD have recently issued for comment a draft interpretation
    Statement which will have significant implications for persons who
    provide accommodation in holiday homes, home-stays and serviced
    apartments. At present, the owners of holidays homes, home-stays,
    and serviced apartments may in certain circumstances register for
    GST on the grounds that such premises are considered to be
    commercial dwellings.

    The IRD are challenging that interpretation and state that in their
    view, premises being primarily used to provide accommodation in a
    dwelling fall within the residential accommodation exemption from
    GST. As such they are not commercial dwellings and owners cannot
    register for GST. This may have significant implications for
    apartment developers as often the marketing to the public is on the
    basis that the purchaser can get GST registered.

    Although issued for comment, this draft interpretation Statement is
    the IRD's considered view on the matter, and any reader
    contemplating the acquisition of a holiday home, home-stay or a
    serviced apartment should take professional advice before attempting
    to register and/or recover the GST paid on the purchase price. The
    Government has announced that if this policy proceeds, they will
    change the law to protect existing owners who are already GST
    registered to avoid them having to deregister and pay back a
    significant amount of GST.
    or

    http://www.taxpolicy.ird.govt.nz/pub...les/IS0049.pdf
    Find The Trend Whose Premise Is False - Then Bet Against It


 

Thread Information

Users Browsing this Thread

There are currently 1 users browsing this thread. (0 members and 1 guests)

Similar Threads

  1. Capital Gains taxed (trading bent) - What about Capital Loss ??
    By Bluekiwi in forum Finance, legal and tax (NZ)
    Replies: 26
    Last Post: 14-12-2012, 03:44 PM
  2. Capital Gains Tax in Australia
    By Keely in forum Property Investment (Oz)
    Replies: 7
    Last Post: 13-11-2009, 10:29 AM
  3. Capital gains
    By caligpierson in forum Property Investment (NZ)
    Replies: 3
    Last Post: 08-06-2008, 10:38 PM
  4. Capital gains tax
    By Propertyhunter in forum Property Investment (NZ)
    Replies: 12
    Last Post: 10-12-2007, 10:00 AM
  5. Capital Gains Tax By Another Name??
    By Walter in forum Finance, legal and tax (NZ)
    Replies: 0
    Last Post: 08-05-2007, 01:14 PM
  6. Capital Gains Tax
    By Walter in forum Finance, legal and tax (Oz)
    Replies: 0
    Last Post: 11-04-2006, 12:13 PM
  7. Capital Gains Tax & LAQC
    By carolvw in forum Finance, legal and tax (NZ)
    Replies: 1
    Last Post: 04-10-2005, 08:57 PM
  8. Exemptions to Capital Gains Tax (CGT):
    By muppet in forum Property Investment (UK)
    Replies: 0
    Last Post: 24-09-2005, 10:59 PM
  9. Westpac tips house prices will fall 5% in 2005
    By donna in forum Property Investment (NZ)
    Replies: 2
    Last Post: 16-07-2004, 10:58 PM

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •