If you are trading properties, you need to be very careful with GST claims as the IRD are on the war path.
1) If you have just purchased your first trade property within a trading entity, when you try to claim the GST, IRD will audit the GST refund. As it is the first transaction they look to see if you are undertaking a continuous taxable activity. If you are just buying one property, doing it up and selling it, they will probably argue this isn't a continuous activity! So they will disallow the GST refund and look at charging interest and penalties.
If you plan on doing several trades, then you need to be able to prove this. If you can't get more mortgages, IRD will most likely not believe you, and once again determine that it is not a continuous activity.
So if you are new to trading, or using a new entity, you need to be able to prove to IRD that your trading activity is more than a "one off" and you have financing to do more, plus a plan etc would help.
2) Lease Options, Sandwich Leases and Rent to Own.
If you sell your trading properties by any of these methods, IRD will look to apply the definition of a hire purchase. If sucessful, you will have to pay the WHOLE GST on the sale price at the date the option or rent to own agreement is signed. This could have huge affects on a traders cashflow, and if only a small deposit is received, it could result in a GST liability on the sale of significantly more than the deposit received!
I would suggest that anyone trader who is about to make there first GST return, or any trader that is in the audit process contacts myself or Anthony from GRA to discuss IRD's new viewpoint of these transactions and possible problems you may face.
Ross
1) If you have just purchased your first trade property within a trading entity, when you try to claim the GST, IRD will audit the GST refund. As it is the first transaction they look to see if you are undertaking a continuous taxable activity. If you are just buying one property, doing it up and selling it, they will probably argue this isn't a continuous activity! So they will disallow the GST refund and look at charging interest and penalties.
If you plan on doing several trades, then you need to be able to prove this. If you can't get more mortgages, IRD will most likely not believe you, and once again determine that it is not a continuous activity.
So if you are new to trading, or using a new entity, you need to be able to prove to IRD that your trading activity is more than a "one off" and you have financing to do more, plus a plan etc would help.
2) Lease Options, Sandwich Leases and Rent to Own.
If you sell your trading properties by any of these methods, IRD will look to apply the definition of a hire purchase. If sucessful, you will have to pay the WHOLE GST on the sale price at the date the option or rent to own agreement is signed. This could have huge affects on a traders cashflow, and if only a small deposit is received, it could result in a GST liability on the sale of significantly more than the deposit received!
I would suggest that anyone trader who is about to make there first GST return, or any trader that is in the audit process contacts myself or Anthony from GRA to discuss IRD's new viewpoint of these transactions and possible problems you may face.
Ross
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