GST registration for apartment purchase

Question from Shahper updated on 24th February 2016:

I am looking to buy an apartment in Queenstown. I am buying it as vacant on possession. It is currently a managed apartment and once I take ownership I will have it managed by another company. My lawyer and the agent are telling me I need to be GST registered to avoid paying the purchase price plus GST. Is this true? If so, can I as an individual be GST registered? Do I need to create a company first and then GST register it? How does this impact on...well, everything?

Our expert Mark Withers responded:

Yes, individuals can be GST registered. And, no, you don't need a company unless you want one for another reason. Residential rental in a dwelling is exempt from GST but the provision of accommodation in a commercial dwelling can constitute a taxable activity for GST. Short term letting of serviced apartments is considered a commercial dwelling when run as a hotel pool. Registration for GST though is voluntary where your turnover from the activity is under $60,000.

Whether you must now pay GST will depend on whether you signed a contract that is plus GST. The contract will also have contained the schedule 2 warranty page that requires the purchaser to give warranties about their GST position. We now have compulsory zero rating of land transactions between registered parties regardless of vacant possession. There the purchaser warrants they will be registered of settlement, will use the property in a taxable activity and won't use the property as a primary residence the contract will be zero rated.

If you register and zero rate you will though be required to pay GST on the rent and, of course, will have a GST liability on the sale or disposal of the property. This also triggers if you let it residentially rather than through the managed pool. It sounds like it may be too late - but the time to take advice on the GST consequences of land transactions is before you sign the contract not after!

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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