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Thread: GST Question

  1. #1
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    Default GST Question

    ​I own a number of residential rental properties in my own name, most of which I have owned for many years.

    I also have one residential property, bought this year, now registered in the name of my company (sole Director and shareholder). I have done this in order to utilse the tax losses within this company. The company used to be GST registered, but was deregistered a couple of years ago. There is no mortgage on this property.

    I am now looking to buy an existing commercial property to use as a storage/workshop facility within my rental activities. As it is a commercial, it is being sold at a price plus GST.

    Question: Is there any way I can claim the GST portion of the purchase price back after purchase given I will have no +GST income?

    I do not want to transfer any of my existing rentals into my company name, as this would trigger tax liabilities under the ringfencing legislation for the next 2+ years.

  2. #2
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    Default

    Quote Originally Posted by flyernzl View Post
    ​I own a number of residential rental properties in my own name, most of which I have owned for many years.

    I also have one residential property, bought this year, now registered in the name of my company (sole Director and shareholder). I have done this in order to utilse the tax losses within this company. The company used to be GST registered, but was deregistered a couple of years ago. There is no mortgage on this property.

    I am now looking to buy an existing commercial property to use as a storage/workshop facility within my rental activities. As it is a commercial, it is being sold at a price plus GST.

    Question: Is there any way I can claim the GST portion of the purchase price back after purchase given I will have no +GST income?

    I do not want to transfer any of my existing rentals into my company name, as this would trigger tax liabilities under the ringfencing legislation for the next 2+ years.
    Is the property being sold "as a going concern " with tenants?

  3. #3
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    Default

    Quote Originally Posted by Beano View Post
    Is the property being sold "as a going concern " with tenants?
    Purchase will be with vacant possession.

  4. #4
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    Default

    You won't be able to register for GST unless you are going to make "taxable supplies" - that is, income that attracts GST.

    You could set up a lease where you pay your company $X per month to use the workshop facility, and it could charge you GST on that, thereby allowing you to claim GST on the warehouse on purchase. But it'd need to be at or near market rates, and you'd need to return GST on the eventual selling price also.

    In fact, as it is, there may be considerations if you're using company property for personal purposes - and by personal, I mean the rental investments held in your personal name. I haven't looked into the Fringe Benefit regime recently, and how it applies to rent-free use of buildings, but I'd imagine it does.
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  5. #5
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    Default

    Quote Originally Posted by flyernzl View Post
    ​I own a number of residential rental properties in my own name, most of which I have owned for many years.

    I also have one residential property, bought this year, now registered in the name of my company (sole Director and shareholder). I have done this in order to utilse the tax losses within this company. The company used to be GST registered, but was deregistered a couple of years ago. There is no mortgage on this property.

    I am now looking to buy an existing commercial property to use as a storage/workshop facility within my rental activities. As it is a commercial, it is being sold at a price plus GST.

    Question: Is there any way I can claim the GST portion of the purchase price back after purchase given I will have no +GST income?

    I do not want to transfer any of my existing rentals into my company name, as this would trigger tax liabilities under the ringfencing legislation for the next 2+ years.
    Two possible approaches'

    1) As I understand your question. You will be using the building for non taxable activity, ie associated to residential rental. Therefore you won't be able to register for GST and won't be able to claim GST.

    Therefore you would purchase at a GST inclusive amount.

    Under this scenario if you did pay rent between entities, there would be no GST.

    2) Buy in GST registered entity
    As it is a commercial building and will be rented as commercial building = taxable activity.
    Purchase would be zero rated, so purchase amount would be GST exclusive.

    GST entity would then rent plus GST, say 1,000 per month plus GST = 1,150
    150 returned to IRD, being the GST portion
    Non GST entity would pay the rent of 1,150, and not be able to claim any GST.


    I would go with option 1, presuming the property will be low value as just used for storage. Keeps it really simple and easy, no GST registration or GST returns.

    With any GST scenario's, the exact facts can be very important and I would suggest a quick chat with your accountant, just to check. My answer is more general in nature.

    Ross
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  6. #6
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    Default

    Well, it's a moot point. If the company was to be regarded as a PM coy, that's a GST assessable activity.

    Could the coy buy the building?

    Then the coy could carry on the business of property management.
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  7. #7
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    Quote Originally Posted by Perry View Post
    Well, it's a moot point. If the company was to be regarded as a PM coy, that's a GST assessable activity.

    Could the coy buy the building?

    Then the coy could carry on the business of property management.
    To what point? Property management company would have to charge property mgmt fees to rental’s, and then end up in situation 2) that I outlined above. Just seems to complicate it!
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  8. #8
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    Quote Originally Posted by Rosco View Post
    1) As I understand your question. You will be using the building for non taxable activity, i.e. associated to residential rental. Therefore you won't be able to register for GST and won't be able to claim GST.
    As I see it, that comment of yours depends on the meaning of associated.

    A PM coy - despite its association with residential rental management - is a taxable activity.

    And Peter said that the company was no longer GST registered.

    That could be worth a re-think, depending on Peter's desired outcome.
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  9. #9
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    I did say situation 2) !!!

    Ross
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