Managed apartments & GST law

Question from Erica Blake updated on 19th February 2007:

We are looking at purchasing a Managed Apartment in Queenstown as an investment property, and were going through the process of research whether or not we would need to be GST registered, and whether to set up a company or Trust, when we stumpled upon your article dated 19th October regarding property & GST. Does this mean we will not need to be registered? will we need to pay GST on the purchase price? (It is not being sold by a developer) when will the changes take effect? Look forward to your response. Thank you

Our expert responded:

Whether or not a person needs to be GST registered will depend on the level of GST'able income received. If the total GST'able income is less than $40,000, there is no need to be GST registered. Under $40,000, a person can choose to voluntarily register for GST. Whether or not you will be charged GST will depend on whether the person selling the property is GST registered. GST can only be charged if you are GST registered.

As the changes are still only proposed at this time, we cannot say when this legislation will come into effect or even if it will come into effect as has been discussed. The proposed changes mean that serviced apartments will fall outside of the GST net as they will be treated just like residential property investments in that GST is not claimable on any expenses regarding the property.

The good bit is that the Government have announced an intention to not make the legislation changes retrospective so that those investors already operating under the existing legislation can do so and not have to pay back the GST. Again though, this legislation has not been passed, and until it is, we cannot be certain what it will contain. As with any investment, the deal should work on its own merit and not because of any perceived benefit arising from tax or GST.

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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