Hi guys. I'm in a real sticky situation with GST and the long term tax obligations I might have. Any help on this would be fantastic ...
The property for sale has a residential house at the front and a commercial retail shop at the back. Both are on the same title and are being sold together as one lot. Both occupy roughly 50% of the land each and have very similar value of improvements, so in theory the value apportioned would be approx 50%. So for example, for a $1m valuation, the front house would be worth $500k and the back commercial retail shop would also be worth $500k.
In the sales and purchase agreement it is asking me to stipulate how much I am paying for the residential house at the front and how much I am paying for the commercial retail shop at the back. As I plan to live in the front house (or possibly rent it out) that part is GST exempt or rated at 0%, however, the back commercial retail shop must have GST added and that amount will be added onto the purchase price.
If I register for GST, I can claim back the GST, so that's not a problem, however, if I decide in the future to convert the commercial retail shop into a residential house, I will be liable to pay any GST owing. That amount, in say 20 years time might be significant, given the appreciation in land value. So the question is, do I register for GST or not?
There's no real benefit to being GST registered either, as the commercial retail shop pays for all of the outgoings, meaning that there's virtually no GST expenses I can claim. Also, I don't want the hassle of filling GST returns and I will definitely convert the retail shop back to residential at some stage, so I would really like to do this transaction without being GST registered. Can I put an offer in and ask the vendor to de-register for GST before settlement as one of the conditions?
Currently, the vendor is GST registered and is receiving GST on the rental payments from the commercial retail shop, that amount however is less than $60,000 per year. So in theory it is possible for the vendor to de-register for GST, assuming of course they pay any GST owing. If the vendor does de-register for GST we can do the transaction as a "home and income" type arrangement, like for example a house with a small bed & breakfast. I would obliviously have to increase my offer to match the amount of GST owning so the vendor is not out of pocket. However, the vendor will not tell me the GST outstanding or the current valuation of the commercial shop, as the vendor has owned the property since the mid 1980s, and frankly, will not disclose his accounting situation.
If I do decide to be GST registered, what is stopping me from putting down a valuation of say $999,999 for the residential house and then putting down a $1 valuation for the commercial retail shop? Thus giving me only a 15 cent GST liability? I would assume the IRD would have a problem with that but how they stop someone from doing it? Should I put down a low amount but still reasonable like $100k/$900k? How does one come up with a valuation in this case, as the sales and purchase agreement just ask me to write it down, that's all?
I find this all really confusing, it's all just a "money go round". However, I'm really worried about the future implications of GST and what impact it would have down the road when I do decide to convert the commercial shop back to residential. The location is in an upmarket Auckland area, where land values are super high, so if land values continue to sky rocket we could be talking hundreds of thousands of dollars of GST owing 20 years from now!
Thanks in advance for any replies
The property for sale has a residential house at the front and a commercial retail shop at the back. Both are on the same title and are being sold together as one lot. Both occupy roughly 50% of the land each and have very similar value of improvements, so in theory the value apportioned would be approx 50%. So for example, for a $1m valuation, the front house would be worth $500k and the back commercial retail shop would also be worth $500k.
In the sales and purchase agreement it is asking me to stipulate how much I am paying for the residential house at the front and how much I am paying for the commercial retail shop at the back. As I plan to live in the front house (or possibly rent it out) that part is GST exempt or rated at 0%, however, the back commercial retail shop must have GST added and that amount will be added onto the purchase price.
If I register for GST, I can claim back the GST, so that's not a problem, however, if I decide in the future to convert the commercial retail shop into a residential house, I will be liable to pay any GST owing. That amount, in say 20 years time might be significant, given the appreciation in land value. So the question is, do I register for GST or not?
There's no real benefit to being GST registered either, as the commercial retail shop pays for all of the outgoings, meaning that there's virtually no GST expenses I can claim. Also, I don't want the hassle of filling GST returns and I will definitely convert the retail shop back to residential at some stage, so I would really like to do this transaction without being GST registered. Can I put an offer in and ask the vendor to de-register for GST before settlement as one of the conditions?
Currently, the vendor is GST registered and is receiving GST on the rental payments from the commercial retail shop, that amount however is less than $60,000 per year. So in theory it is possible for the vendor to de-register for GST, assuming of course they pay any GST owing. If the vendor does de-register for GST we can do the transaction as a "home and income" type arrangement, like for example a house with a small bed & breakfast. I would obliviously have to increase my offer to match the amount of GST owning so the vendor is not out of pocket. However, the vendor will not tell me the GST outstanding or the current valuation of the commercial shop, as the vendor has owned the property since the mid 1980s, and frankly, will not disclose his accounting situation.
If I do decide to be GST registered, what is stopping me from putting down a valuation of say $999,999 for the residential house and then putting down a $1 valuation for the commercial retail shop? Thus giving me only a 15 cent GST liability? I would assume the IRD would have a problem with that but how they stop someone from doing it? Should I put down a low amount but still reasonable like $100k/$900k? How does one come up with a valuation in this case, as the sales and purchase agreement just ask me to write it down, that's all?
I find this all really confusing, it's all just a "money go round". However, I'm really worried about the future implications of GST and what impact it would have down the road when I do decide to convert the commercial shop back to residential. The location is in an upmarket Auckland area, where land values are super high, so if land values continue to sky rocket we could be talking hundreds of thousands of dollars of GST owing 20 years from now!
Thanks in advance for any replies
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