People selling investment apartments need to make sure they’re aware of all the tax issues involved, to avoid unexpected GST bills.
Inland Revenue assurance manager Richard Philp says many people do not pay GST when buying an apartment, but they may be faced with a large GST bill when they want to sell the apartment.
“In many cases, the apartment purchase includes a lease to a management company, often with a guaranteed rental arrangement,” he says.
No GST was charged during the transaction because investors bought the apartment as “a going concern”.
When a transaction involves the sale of a “going concern” no GST is payable, provided certain conditions are met, such as both parties being GST-registered. The transaction is defined as “zero-rated” for GST.
Mr Philp says if the investor later decides to sell the apartment, or the way it is used has changed, GST may have to be paid on the sale or at the point in time a change in use occurs.
For example, the original management agreement may have expired, and the apartment may be rented to tenants directly. Alternatively, the owners may decide to live in the apartment themselves.
“People who bought an apartment with a managed lease should talk to a tax advisor before making a decision about selling it or changing its use,” he says.
Inland Revenue has produced a new brochure called “Thinking of selling your leased apartment?” to provide information about tax issues related to GST zero-rated apartments.
For more information, or to order a copy of the brochure, go towww.ird.govt.nz/property.