How will GST affect my commercial property?

Question from David Johnson updated on 19th January 2007:

Hi, I noticed your article 'Property market takes another hit from GST changes' dated 19 October. I own 2 serviced apartments that were bought zero-rated for GST that are under commercial leases. Under the proposed changes I am curious to know what will happen when I sell these properties - will GST then be due on the sale price? Or can I on-sell under the existing commercial lease without becoming liable for GST (as is the case now)?

Our expert responded:

As you have said, the changes are proposed. IRD have released their interpretation for pubic comment and until the legislation is actually passed, we have no sure way of knowing how this situation will be dealt with. Based on what IRD have said and that they have said at this stage that the legislation will not be retrospective, it would be reasonable to assume that if you sell the property, you would merely add GST to your desired selling price and in paying back the GST, you will have received it in cash as part of the selling price. The proposed change in GST may result in an increase in the prices of properties affected by the legislation as developers and investors will not want to incur this cost themselves, and this may well increase the time that it takes to sell properties of this nature.

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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