Can my LAQC claim back GST?

Question from Angie updated on 22nd January 2008:

We are currently selling our house into our newly established LAQC. We have been told, the LAQC will be able to claim back GST on the purchase price of the house. I am unsure whether this is calculated on the price we bought it for $455,000 or the new value which we are selling to the LAQC for of $600,000? We understand we will have to repay this on sale of the property unless it is sold as a going concern.

Our expert responded:

It is always wise to get advice from professionals who are familiar with property. If you follow this advice, not only will you NOT be able to claim the GST, you would be stung with a penalty of up to 100%, which means that not only would you not be able to claim the $53,333 in GST, you'd have to pay a penalty of up to $53,333! Residential rental properties are exempt from GST unless you are converting it to be used for commercial. As this does not appear to be the case, you are not able to claim GST on the LAQC's purchase price. In addition to that, if you are selling your house into your LAQC only to rent it back (to yourselves), please be advised that IRD consider this to be tax avoidance and will take a very dim view of anyone pursuing such a course of action. The reason for this is that there is no commercial reason as to why you would sell your home to an LAQC and then rent it back. The only reason that you would do this is to save tax and in NZ, to do anything for the primary purpose of saving tax, is not allowed. There must be a commercial reason first. On the other hand, if you are selling your house to the LAQC because you have bought another property to be your home and are going to keep your old home to be rented out to third parties, then that will be fine.

Kenina Court is a director of Acorn Solutions Limited, an accounting firm dedicated to working with clients to help them create wealth. She is an avid property investor, entrepreneur and seminar presenter on asset protection and wealth strategies.


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