Gst query

[saffaguy]

Hi guys.
I'm new to the forum,and would just like to say g'day.Thanks to all of you for such an awesome site for new investers.
I have a GST query i'm interested in getting some feedback on.
I currently have 2 houses.One i live in the other is an IP.I'm interested in getting rid of one of the houses and moving onto a 10 acre section i found.
The 10 acre section's vendor is keen on a swap.Either swapping the 10 acres for my house or my investment.In his advert he's asking $195000 +GST.Both houses are worth approx the same as the 10 acre section.He says he's keen on a direct swap.
If i did the swap ,would i then have to pay GST of $24375 on top?

[Green Fish]

GST on property sales can get very complicated. Given that there's 25k at stake, it might be worth spending $500 on a hour's worth of time with a tax lawyer - however galling that might feel!

Although the transaction is described as a "swap", it will probably be recorded as two separate sales. The issue is whether the sale to you will trigger the "plus GST (if any)" clause in the contract.

This depends on matters upon which you probably have no knowledge. For example, the vendor might have subdivided the 10 acre block off from other land owned by the vendor. In that case, the vendor will probably be liable for GST and that liability would then be passed on to you.

You can, of course, negotiate for a price that is "inclusive of GST (if any)". But it would be preferable to take the "(if any)" out of the equation and for both parties to agree as to who pays what in the event that the IRD does not agree with the way the parties have treated the transaction.

That's my ten cents worth. Decent advice is much more expensive.

[Munga]

I agree with Green Fish.

If you don't go and pay for some professional advice then you will be saving the pennies and spending the dollars.

[JohnL]

You certainly need to allow for GST in the first instance.

If you are buying a property and running a business on it ie calf rearing, horticulture etc, you can claim GST on the land, excluding house and the land surrounding the house. Of course, it needs to be a legitimate GST registered business capable of having a reasonable turnover.

Definitely need to at least ring an expert, but if its just a lifestyle block with no GST registered income, its hard to see how you can avoid paying a GST inclusive price and even if you are planning a good business activity, it still wouldn't allow you to claim all the purchase price as a GST expense (unless you are a developer and will be 'trading' the property).

Just my uneducated thoughts.

John

[simoncoles]

Hello Saffaguy

I agree with Johnl ( And I am also no expert)

I think if you are conducting business relevant to property, (Or the property will be for business use) you could deduct the GST. Otherwise the price for the property is $219,375 and you have a cash shortfall of $24375 in terms of the swap values.

The "GST" in this case is a red herring. You are not paying GST but paying for the difference in value.

Just the same as any residential property could be advertised for a price plus GST. However the bulk of purchasers cannot claim the actual GST and hence the price to them is simply the inclusive price.

Simon

[CJ]

Otherwise the price for the property is $219,375 and you have a cash shortfall of $24375 in terms of the swap values.

Or tell him your place is worth $219k.

Do you plan on operating a "taxable activity" (GST speak) from the block or are you just going to run a few lambs an pigs for Christmas dinner?