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  1. #1

    Default Transferring house from GST registered trading co to LTC

    I have a property I initially bought with the intention of trading after a reno through my trading co. My situation has now changed and I now have decided I'd like to keep the house.

    What process do I need to go through to move it over to the LTC and at what price can the LTC "buy" it for?

    I have claimed GST already on it and have not hit my next GST return date yet.

    Any help appreciated.

    James

  2. #2
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,592

    Default

    Hi jrad,

    You need to think this through carefully!

    1) GST will be repayable at fair market value

    2) This property was purchased with the intention of selling for a profit. So even though you are selling to a new entity, it remains tainted under the association rules, and the gain will always be taxable. ie no 10 year rule, as this is a trading property.

    Still want to keep it?

    Ross
    More Profit from Property? TEACH ME MORE
    Ross Barnett - Coombe Smith Property Accountants
    Proud to give the best property advice for over 13 years.

  3. #3
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,592

    Default

    And, you will have to pay tax on any profit after being sold at fair market rate.

    Ross
    More Profit from Property? TEACH ME MORE
    Ross Barnett - Coombe Smith Property Accountants
    Proud to give the best property advice for over 13 years.

  4. #4

    Default

    Quote Originally Posted by Rosco View Post
    You need to think this through carefully!

    1) GST will be repayable at fair market value

    2) This property was purchased with the intention of selling for a profit. So even though you are selling to a new entity, it remains tainted under the association rules, and the gain will always be taxable. ie no 10 year rule, as this is a trading property.

    Still want to keep it?
    Yes I do want to keep it as I am thinking ahead for my daughter and school zones etc.

    So if I understand correctly, get the place valued, sell it to the LTC at this price and pay GST and income tax on the sale price. Then, say 11 years down the road I decide to put it on the market, I will pay tax again - even though my new intention is to keep it and I've paid my tax on the "trade intentions".

    The rules seem a bit unfair. If my initial intent is to buy and hold, then my intent changes, the IRD have their way and I am stung with tax. However vice versa I am still stung. Guess you can't avoid the tax man ay..!


    Quote Originally Posted by Rosco View Post
    And, you will have to pay tax on any profit after being sold at fair market rate.

    Ross
    So what about I just keep it in the trading co and rent it for now with the ultimate intention of selling. Any implications?
    I am willing to accept the fact I will pay GST and Inc tax on it given what I was intending but it's not worth the hassle and expense if I have to pay twice!

    Thanks
    James

  5. #5
    Join Date
    Aug 2009
    Location
    Auckland
    Posts
    1,080

    Default

    Quote Originally Posted by jrad View Post
    The rules seem a bit unfair. If my initial intent is to buy and hold, then my intent changes, the IRD have their way and I am stung with tax. However vice versa I am still stung. Guess you can't avoid the tax man ay..!
    Hi James,

    Actually, if you bought with the intention of buy and hold, and given that you are not already tainted, then you decided to sell you will *not* be stung with tax. However, your future properties purchased will be if you sell them as you would become tainted.

    I could be wrong, however, as I am no accountant but this has always been my understanding.

    Regards,

    BD

  6. #6
    Join Date
    Jul 2012
    Location
    Tavua, Fiji
    Posts
    3,347

    Default

    You can fix this with structuring jrad. Go and see Gilligan Rowe or someone similar who specialises in rogering IRD. It can be fixed.

  7. #7
    Join Date
    May 2007
    Location
    Hamilton
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    Default

    Sorry BigDreamer, your comments are not right. Initial intention (in first line) was to trade for profit, so is taxable.

    With trading properties it is difficult to convert to long term hold, as your long term entity is associated to the trading one. Most people just hope to never get caught on this and hope IRD will forget (they might not too!). There is CB 16, an exemption for personal house, which based on your daughter could be an option to look at further. Key part would be "mainly as a residence". So if this was rented to tenants, for most of the time, then probably wouldn't fit CB 16 exemption.

    If you keep in GST entity, then obviously your GST could be a lot higher if you keep for a number of years. Vs if you change to hold entity now, you pay GST on fair market value now.

    If you keep in GST entity, you will have to do GST adjustments, over next few years, and effectively pay GST back anyway.

    You won't pay tax twice. (really simple example, and I have excluded GST to keep it very basic)
    - buy for $500k
    - sell for $600k to long term hold entity. Pay tax on the $100k profit
    - sell for $900k in 12 years . Pay tax on the $300k extra profit

    Ross






    CB 16 Residential exclusion from sections CB 6 to CB 11

    • Exclusion

      (1) Sections CB 6 to CB 11 do not apply if—

      • (a) the person—

        • (i) acquired the land with a dwellinghouse on it; or


        • (ii) acquired the land and erected a dwellinghouse on it; and


      • (b) the dwellinghouse was occupied mainly as a residence by—

        • (i) the person and any member of their family living with them; or


        • (ii) if the person is a trustee, 1 or more beneficiaries of the trust.


      What exclusion applies to

      (2) The exclusion applies to the land that has the dwellinghouse on it. It also applies to land related to the land that has the dwellinghouse on it if the total area of the related land is—

      • (a) 4,500 square metres or less; or


      • (b) more than 4,500 square metres, if the larger area is required for the reasonable occupation and enjoyment of the dwellinghouse.


      Who exclusion does not apply to

      (3) The exclusion does not apply to a person who has engaged in a regular pattern of acquiring and disposing, or erecting and disposing, of dwellinghouses.

      Defined in this Act: dispose, land, trustee
      Compare: 2004 No 35 s CB 14
    More Profit from Property? TEACH ME MORE
    Ross Barnett - Coombe Smith Property Accountants
    Proud to give the best property advice for over 13 years.

  8. #8
    Join Date
    Aug 2009
    Location
    Auckland
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    1,080

    Default

    Ross, my reply was not related to the original post which he clearly mentioned he bought with the intention to trade but rather to the second post with the hypothetical scenario if someone bought with the intention of buy and hold.

  9. #9

    Default

    Sorry to jump in on thread, but perhaps it may shed some extra light on the subject...

    We are in a similar position - have purchased land with intention to build a spec house to sell, however would like to rent out now as it is cashflow positive and strong rental demand. No point transferring to another entity as we are tainted as developers and would have to pay gst and tax anyway - is that right? Or if we paid the gst back now (or through adjustments) on the building cost would we only have to pay tax on the sale price and not gst?

    Thanks in advance for any advice.

  10. #10
    Join Date
    Jul 2012
    Location
    Tavua, Fiji
    Posts
    3,347

    Default

    Go and get some advice. It is fixable no problem you just need proper advice. No one is going to post it here in a public forum :-)


 

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