Second hand goods rule

Our Experts Answer:

Firstly, double check that the vendor is unregistered, it is unusual for them not to be. If commercial rental is over $60k they were required to be and IRD could deem them registered, this could invoke zero rating issues subject to what was in your agreement.

Also, GST can only be claimed using the second hand goods provisions if the property was not acquired from an associated party. Assuming this is the case, your treatment of the activity has not been consistent. It is incorrect not to have claimed GST on the commercial portion from the outset if you have considered it to be included in your taxable activity and have returned GST on the commercial rent since acquisition.

My suggestion would be to make a voluntary disclosure of the original omission of the claim that should have been made in the GST return following acquisition for the commercial portion of the property. IRD may even pay interest on the refund due assuming they accept the voluntary disclosure. Having now changed the use of the residential portion of the property to commercial you will be able to apply the change of use provisions in section 21FB to adjust for the input tax refundable on the residual portion of the property that is now applied to the commercial taxable activity.