Boarding house and GST

Chris Wearing asks:
(updated on Wednesday, March 02nd 2022)

I am considering buying a boarding house. If fully occupied would generate more than $60K net. If I purchased would I need to become gst registered?

The contract requests a purchase price inclusive of gst. If I am not currently gst registered and the current owner is not gst registered, then is the property zero rated? If I sold later would I need to pay gst on sale?

I also own other rental properties. Would this impact these at all in terms of tax and my status?

Our Experts Answer:

Addressing each of your queries in turn:

If the anticipated gross turnover is more than $60,000 per annum, then yes, the owner of this property has to be GST registered. If this is the case, you would buy the property as a GST registered purchaser. If the vendor is not GST registered, then there is no GST from their perspective on the sale price, but as a GST registered purchaser you can make what is known as a second-hand goods GST claim.

Zero rated transactions arise when both parties are GST registered. You have to be careful in these circumstances that the vendor is what they say they are (i.e. not registered).

You do not want to agree to a price anticipating a GST claim because they represent themselves as not being registered, and then subsequently discover that they are registered.

Yes, future sale would be subject to GST. However, whether the GST rate on sale is 15% or 0% depends on whether you sell to a non-registered party or a registered party.

Being GST registered in respect of this property will not affect other property you own that is rented on a residential basis. While I hope the above helps, I suggest you get advice prior to making an offer, given the potentially severe consequences of getting the application of GST wrong.

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