Planning ahead for the new GST legislation

Question from Tim Robinson updated on 16th January 2007:

Hi - my wife and I (from the UK) will be investing in NZ fully managed holiday apartments in Jan/Feb 2007. When will the new GST proposals (your article 19 Oct) take effect? Will they mean there is no benefit in registering for GST (if GST on the purchase prcie can not be claimed back)? Will there still be a need to register if gross income eceeeds $40,000, and does this limit change for multiple properties in joint name (i.e. is the limit per person, per property etc)? What will be the impact on sale of the property? Thanks, Tim

Our expert responded:

Until the legislation is finally announced, we cannot comment definitively. However, what we can say is that being registered for GST when the biggest costs you incur are not GST'able, can be a blessing. While you have an opportunity to claim GST on the purchase price, ongoingly, as you receive your income, you will end up paying GST as the two biggest costs being interest and depreciation attract no GST. If you cannot sell the property as a going concern in the future, then you will have to pay GST on your selling price. Therefore, the only costs you can offset against the GST are insurance, repairs and maintenance, management fees and so on. These are often much less than the GST on the rental income, so you are likely to end up paying GST instead. We would always recommend that investment decisions are made on the basis of the investment itself and whether it stacks up, rather than any perceived benefit from GST. A windfall from GST should be regarded as the icing on the cake, not the reason why you would make an investment. And the $40,000 refers to an annual limit per person or company or trust. Particularly as you are from the UK, please make sure you take special advice for your circumstances before you start investing to ensure you have the right structures in place before you get started.

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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