Pay or claim GST on the income received from a residential rental?

Question from paul updated on 19th January 2007:

I have purchased a commercial property which consists of a retail area on the bottom floor which leases for $25k + GST, the top floor consists of 2 flats which earn $16k collectively. My question is, because the top flats are residential, do I pay or claim GST on the income received for this residential portion? Normally residential income is GST exempt. PS I have paid/claimed GST on the purchase price of the building(it was zero rated).

Our expert responded:

Generally, in a situation such as this, there would only be GST charged on the commercial portion of the building as the residential flats would be exempt from GST. I am assuming from your comment that while the building was zero rated for GST purposes, this was on the commercial area only as there would have been no GST on the residential flats. In that case, you will have to return GST on all items in relation to the commercial portion of the building, and there will no GST payable or claimable on the residential flats as they were exempt from GST. GST is an area fraught with difficulty and it is always a good idea to get specific advice from your accountant.

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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