GST on short-term accommodation

Question from Brad updated on 1st June 2012:

I own an Auckland CBD apartment in an LTC structure and I'm running it as short-term accommodation. I would like to know if (A) we should be paying GST on rent received (we currently are) and (B) what the GST implications are when we sell? My understanding is that we can sell it as a going concern and not be liable to paying GST on sale? Bearing in mind that resource consent was given to our building for short-term accommodation only. Any advice on the above and the most cost effective GST/investment structure would be great!

Our expert Mark Withers responded:

It is a surprisingly involved question. The provision of accommodation in a dwelling is an exempt supply for GST. However the provision of accommodation in a commercial dwelling is a taxable supply for GST. Commercial dwellings include hotels, motels boarding houses and similar. The Government has left the door open for serviced apartments to be considered capable of being taxable activities for GST but a single apartment is unlikely to be a commercial dwelling. Apartment complexes or pools of managed apartments that are leased to an operator are more likely to be considered commercial dwellings. Often commercial dwellings will include a degree of service provision along with the accommodation. Even where you provide accommodation on a short term basis the activity can still simply be considered to be the provision of accommodation in a dwelling as there is no requirement for the accommodation to be permanent. So whilst your taxable activity seems a bit marginal you are none the less registered. If you are ever to sell zero rated you must find another GST registered buyer who will accept that the apartment will form part of their GST taxable activity. I suspect that buyers may not necessarily look to register for GST which would leave you holding the 15% standard rate GST liability of the supply of the property especially if their turnover is below the $60,000 compulsory registration threshold.

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

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