Tax liabilities for LTC property

Question from Barry updated on 8th December 2016:

I've owned a property for around nine years now and it is in a LTC/LAQC setup. I'm looking at selling the property and wondered what sort of GST/TAX liabilities there would be.

We bought the house nine years ago for $730,000. We believe we can sell it for around $1.3m or there abouts in the current market and there is only around $280,000 left on the mortgage.

My understanding is that when selling the property it is GST inclusive. (I'm assuming we're selling it to a new home owner that is not GST registered).

Do we need to pay the GST portion back to the IRD? Or pay any capital gains on the profit (the latter I don't believe)?

Any advice would be greatly appreciated.


Our expert Mark Withers responded:

I will have to make some assumptions to answer this.

Firstly, I assume you have a LTC as LAQC's are gone but some did default to QC only. Regardless, under either structure the distribution of a capital gain by the company remains tax exempt to the shareholder. Residential rental is an exempt activity from GST. I assume therefore that your company is unregistered. In this scenario no GST is payable.

If your company is GST registered this would signal you may have acquired with some development or trading intention. If this is the case, seek professional help on all fronts. Because you will have owned the property during the time buildings could be depreciated you will likely have a tax liability on the recovery of depreciation. Check how much has been accumulated and make a plan to deal with this.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

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