GST quandary

Our Experts Answer:

There’s lots of issues here. Firstly, section 5(15) GST act requires a supply that includes a dwelling to be treated as a separate supply. So step 1 is to consider the value of the house and curtilage and determine if the supply of this portion of the property is exempt, (ie: not part of the vendors taxable activity). You are only required to register if your turnover from the activity is over $60,000. If it is under, registration is voluntary.

If you register, the supply of the land in the taxable activity must be zero rated for GST, subject to you providing certain purchaser warranties concerning your use of the property. This is what the vendor wants, a zero-rated supply that leaves him without an output tax liability and has you catching the hot GST potato.

If you refuse to register he is left with the GST liability of 15% of the supply of the land in the taxable activity. If he negotiates, plus GST, you obviously need to have the house and curtilage split agreed to determine how much GST you will end up paying. If you negotiate " inclusive of GST" you simply settle the contract price and he pays GST on the taxable supply.

At the end of the day it just comes down to price but it’s vital that all parties understand the GST implications or somebody ends up with an expensive 15% ice-cream headache. Step 1 is everybody getting clear on the GST facts and the basis on which the contract will be negotiated. Until this is agreed you can't even talk price because what each of you does with respect to GST impacts the other. Tread carefully and get expert tax advice before signing the agreement. Make sure all the GST warranties in schedule 1 of the standard agreement are answered.