GST on mixed purchase

Question from John updated on 28th August 2017:

This relates to the treatment of GST on a mixed residential/commercial purchase. What is the position if I purchase such a property from a GST registered vendor, with I myself being GST registered?

The property has a restaurant and a two bedroom residential apartment. They are both leased to the same entity (the restaurant). I would be leasing the property to that GST registered entity.

Is it safe to assume then that there is no GST payable on the entire purchase and that I charge and recover GST on the OPEX? Is it up to the leasee to make any apportionment if the GST cannot be claimed as part of the OPEX?



Our expert Nick Ashford responded:

It is not safe to assume you have no GST issue here. Section 14(1)(cb) states that an exempt supply includes the supply of property by way of lease that is to be used for the principal purpose of accommodation in a dwelling by any person, other than a registered person in the course or furtherance of a taxable activity.

In this situation, if you have accepted a single zero rated supply of the property, you could be immediately liable to the IRD for GST on the value of the exempt residential portion of the supply. This is even if the property is leased in its entirety to the GST registered restaurant operator.

My suggestion would be to negotiate the transaction for purchase as a split supply. In this way the exempt portion relating to the residential flat is dealt with as an exempt supply and the commercial portion is dealt with as a taxable supply and zero rated under the CZR rules. The charging of rent and opex then follows on the same basis and is apportioned between that in the taxable activity and that which is exempt.





Nick Ashford and the team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

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