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  1. #1
    Join Date
    Sep 2007
    Location
    Auckland
    Posts
    8,305

    Default Conversion of Use of Property from Office to Residential

    Hi guys, I think I know the answer to this but...

    I have some office space I want to build 2 apartments in.

    If I do this, I will have to change the use from commercial to residential.

    And along with that comes a tax bill right? 15% of the value I think.

    So if it was worth circa $400k, then I owe the IRD circa $60k...

    And this is right at the start of the project... so circa $30k added onto the cost of each apartment!

    Is this correct?
    Last edited by Davo36; 03-04-2019 at 09:38 AM.
    Squadly dinky do!

  2. #2

    Default

    Quote Originally Posted by Davo36 View Post
    Hi guys, I think I know the answer to this but...

    I have some office space I want to build 2 apartments in.

    If I do this, I will have to change the use from commercial to residential.

    And along with that comes a tax bill right? 15% of the value I think.

    ..................................................

    Is this correct?
    sorry? why the tax bill?

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

    Default

    Hi,

    In general you would have to repay GST based on the market value of the property now, so your example if worth $400k + GST then have to repay $60k of GST.

    BUT there are some exemptions around this and in some cases can repay GST based on cost, so worth talking to a property accountant about.

    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
    Join Date
    Sep 2007
    Location
    Auckland
    Posts
    8,305

    Default

    Quote Originally Posted by John the builder View Post
    sorry? why the tax bill?
    See Ross' comment.

    Not many people know about this.

    But essentially when I bought the building it was sold as $x + GST. As a GST registered owner, and because it's a commercial property, I claimed the GST back.

    Now that I'm changing the use to residential, the IRD want that GST I claimed back. You understand?
    Squadly dinky do!

  5. #5

    Default

    Quote Originally Posted by Davo36 View Post
    See Ross' comment.

    Not many people know about this.

    But essentially when I bought the building it was sold as $x + GST. As a GST registered owner, and because it's a commercial property, I claimed the GST back.

    Now that I'm changing the use to residential, the IRD want that GST I claimed back. You understand?

    ok its a GST issue i get that.

    but why not retain this for residential use?

  6. #6
    Join Date
    Sep 2007
    Location
    Auckland
    Posts
    8,305

    Default

    Quote Originally Posted by John the builder View Post
    but why not retain this for residential use?
    I don't understand your question.
    Squadly dinky do!

  7. #7

    Default

    Quote Originally Posted by Davo36 View Post
    I don't understand your question.

    you claimed GST on the commercial purchase and would pay also when you sell. I get that.

    But if you develop for residential can this not also be GST applicable? Why do you need to do adjustment now?

  8. #8
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,592

    Default

    If going to change to long term hold residential, then that is not a GST activity.

    So need to do a change of use for GST purposes, as GST has effectively been claimed on a property that is going to be long term hold residential which isn't correct, hence the adjustment.

    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.

  9. #9
    Join Date
    Apr 2009
    Posts
    939

    Default

    Are you going to unit title the apartments Davo?

  10. #10
    Join Date
    Sep 2007
    Location
    Auckland
    Posts
    8,305

    Default

    Probably. Why? Does that make a difference?

    Getting some office enquiries though, so might just see if I can lease it as office space for a month or so and if not, then consider apartments more seriously.
    Squadly dinky do!


 

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