GST on Housing: Avoid Surprise Tax Bills

As we approach May 2024, it’s crucial to address potential GST pitfalls when selling property. Over the past decade, there have been instances where property sellers, unaware of GST implications, faced unexpected tax bills, especially those converting residential properties into holiday rentals or using them for business.

Thankfully, recent law clarifications provide relief. Registered persons can now elect certain assets outside their taxable activity, exempting them from GST on sale, provided input tax wasn’t claimed, and the goods weren’t primarily used for taxable supplies.

What if GST has already been claimed? Act now! A transitional rule (Section 91 of the GST Act) must be utilized before April 1, 2025. This rule applies to tangible assets, particularly properties.

When does the transitional rule apply?

• Input tax credits were previously claimed or goods acquired as zero-rated supplies.
• Goods were acquired pre-April 1, 2023.
• Goods weren’t acquired for making taxable supplies.
• Goods weren’t primarily used for making taxable supplies.
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To comply, taxpayers must return output tax equal to previously deducted input tax or the nominal GST amount if the property was acquired as a zero-rated supply. The election must be made to the Commissioner by April 1, 2025.

Examples:

• Output tax adjustment equal to previous deductions taken.
• Dwelling with minor use in a taxable activity.
• Business use of a home garage.

If GST wasn’t claimed on the purchase price but on operational costs, no repayment is needed. Act now to validate eligibility, calculate amounts owed, and consider Inland Revenue’s instalment arrangements. With April 1, 2025, looming, don’t delay as there will be no deadline extensions.

Your Outside Team