Mixed use calculations
Question from Lucy updated on 23rd October 2018:
My question relates to GST on a mixed use commercial property. Our GST registered company bought a small commercial unit back in 1993 and has leased it to various businesses ever since. There is residential flat upstairs that was permitted for use by a caretaker but it has only ever been used as offices. The flat was existing when we purchased but I have no idea if the GST was apportioned for the commercial only and not for the residential part. I am still looking for the S+P documents. If it was not apportioned, would we be required to pay GST now that we want to start using the flat for a residence? We want to rent the flat to a related party and sublease the commercial area.
Our expert Mark Withers responded:
I can only assume you acquired the property zero rated which seems likely if you are unsure of the apportionment. Note - it’s always wise when buying a mixed use property to negotiate the split between the exempt supply of a residential portion and the taxable supply of the commercial portion. The supply of a dwelling is deemed to be a separate supply. If you have acquired the entire property zero rated and now seek to return the residential portion to exempt use there is a GST adjustment required to be made to IRD for the GST on the market value of the residential portion returning to exempt use.
Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.