Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


Property market takes another hit from GST changes

Thursday, 19 October 2006

Paul Smith Principal - GST, Ernst & Young

Property market takes another hit from GST changes

The cost of short term accommodation is likely to increase following the GST changes in relation to commercial dwellings announced by the Minister of Revenue today, says Paul Smith, Ernst & Young GST specialist.

The proposals aim to reduce compliance costs for owners of holiday homes, home-stays, farm-stays and serviced apartments and are a step in the right direction for some small operators. However, the proposals may cause headaches for property developers, retirement villages and investors.

?An investor may now be faced with an additional upfront 12.5% cost in the form of GST when a serviced apartment is acquired and property developers will no longer be able to market serviced apartments as being free of GST,? says Paul Smith.

Currently owners of holiday homes, home-stays, farm-stays and serviced apartments can register for GST and claim back GST on associated costs as these properties are generally regarded as a ?commercial dwellings?. The income derived from the property is then subject to GST at 12.5%, 7.5% or another composite rate.

In contrast, accommodation in a ?dwelling? is exempt from GST and GST on associated costs cannot be recovered.

A proposed change in Inland Revenue interpretation will mean that owners of holiday homes, home-stays, farm-stays and serviced apartments will be outside the scope of GST. This is because the property will no longer be regarded as commercial dwellings.

Paul Smith says this is a mixed blessing. ?On the one hand this good news as these owners need not register for GST and return GST in respect of their income. However, on the other hand, they will not be able to claim GST back on associated costs.?

Current owners registered for GST would normally be faced with a significant GST bill for the GST amounts already claimed back from the Government due to the change in treatment.

However, the Minister of Revenue has also announced a change in law so that owners who are already GST registered and have claimed back GST can continue with the past interpretation. The details of this legislation are not available at this stage.

?The Government has offered a sweetener in the form of not applying this interpretation retrospectively, which will please many current owners,? says Paul.

The changes will also impact retirement villages and property developers selling dwellings, such as serviced apartments. Paul Smith cautions that the impact of the proposed changes will need to be carefully assessed so that the true cost of GST is known at the outset before any units are sold to investors. And these businesses are already subject to complex GST rules.

For example, currently the sale of a serviced apartment in a hotel or complex by a property developer to an investor may be free of GST in certain circumstances. This applies where a serviced apartment is sold as a going concern to a GST registered investor who leases the serviced apartment to a manager of the hotel or complex in which the serviced apartment is situated. The investor is required to account for GST in respect of the lease payments received from the manager. The manager then rents out the serviced apartment to the guest staying at the hotel or complex and GST is charged appropriately.

Under the proposed changes, the property developer will be required to charge GST at 12.5% and the investor may not be able to claim back this GST as the investment may now be outside of the scope of GST (for example, if only one or two apartments are held by the investor). Although the investor may not be required to charge GST to the hotel manager as the serviced apartment is no longer a commercial dwelling, the manager will continue to charge GST to the guest as the manager will be operating a commercial dwelling.


© Scoop Media

Business Headlines | Sci-Tech Headlines


Stats NZ: Election Boosts October Job Numbers

Job numbers were boosted by general election staff in October 2020, along with rises in the manufacturing, retail, and hospitality industries, Stats NZ said today. Filled jobs rose by 27,667 to 2.2 million in October 2020 compared with September, after ... More>>

Government: New Year Border Exception For Seasonal Workers In The Horticulture And Wine Industries

2000 additional RSE workers to enter New Zealand early next year employers must pay these workers at least $22.10 an hour employers will cover costs of managed isolation for the RSE workers RSE workers will be paid the equivalent of 30 hours work a week ... More>>


Grey Power: Is Disappointed To Learn Of More Bank Closures

Many older people are being left without essential services because of cost cutting and the march of modern technology. It is now expected that most banking transactions can occur via the internet or telephone. Jan Pentecost, President of the Grey Power ... More>>


Media: Discovery, Inc. Completes Acquisition Of New Zealand’s Mediaworks TV Ltd

Auckland, New Zealand, December 1, 2020 - Discovery, Inc. (“Discovery”), the global leader in real-life entertainment, has completed its acquisition of New Zealand’s leading independent free-to-air commercial broadcaster, MediaWorks TV Ltd, now operating ... More>>

Department Of Conservation: Big Year Underway At Albatross Colony

Familiar faces are returning for the new season of Royal Cam, with a big breeding year underway for the toroa/northern royal albatross colony on Otago’s windswept Pukekura/Taiaroa Head. More than 120 albatrosses, a taonga species, have returned ... More>>

Real Estate: ASB Survey Reveals Majority Of Kiwis Expect House Prices To Keep Climbing


House price expectations are soaring as New Zealand’s housing market shifts up a gear. But stretched affordability is putting a dent in perceptions of whether it’s a good time to buy. While Kiwis reveal they do expect interest rates to fall further. ... More>>

Stats NZ: Births And Deaths: Year Ended September 2020

Births and deaths releases provide statistics on the number of births and deaths registered in New Zealand, and selected fertility and mortality rates. Key facts For the year ended September 2020: 57,753 live births and 32,670 deaths ... More>>