Beach house rental under IRD scrutiny
Goods and services tax has had a turbulent 12 months. Cooperaitken associate Coral Phillips asks beach house owners: Do you rent out your Beach House short-term? And is it owned through a farm entity that files GST returns?
If your answers are yes, changing GST legislation from April 2011 means this rent income is subject to GST too.
With legislation around the definition of commercial rental properties, Ms Phillips said beach houses were a concern.
A commercial rental property now includes residential properties if they are rented out for short-term, for example a beach house.
‘‘You may have an entity (a trust, partnership or a company) which owns a farm and therefore is GST registered. If this entity also owns your beach house and you rent it out short-term, you must now return GST to the Inland Revenue Department on the income and expenses for the beach house,’’ Ms Phillips said
Many people advertised their beach properties on the internet, perhaps the Book-a-bach site or similar and it would be very easy for the IRD to trace, she said.
As many of these properties are now worth much more than when they were originally purchased this will mean a significant GST implication if they are sold.
‘‘If the entity which owns the beach house is not registered for GST there are no implications for you with the new rule. You will not need to be GST registered unless your turnover exceeds $60,000 a year which would be far in excess of the turnover of most beach properties. Also if your beach house is rented out fulltime or not at all, you have no worries,’’ she said.
Ms Phillips said a solution to these GST changes could be to transfer the property to another entity which was not GST registered and advised talking to your accountant it this might apply to you.
‘‘We have seen many changes to GST over the last 18 months. Back in October 2010 the rate increased from 12.5 per cent to 15 per cent which had an impact on farmer’s cashflow,’’ Cooperaitken director Peter Hexter said.
‘‘In April 2011, land transactions between GST registered persons became zero rated,’’ he said. ‘‘Make sure your accountant is included early in discussions to make sure the GST part is dealt with correctly, protecting you from having to finance this amount.
‘‘The GST apportionment rules were changed for assets purchased which have mixed business and personal use.
‘‘The number of ongoing apportionment calculations will depend on the value of the asset and also how the actual use varies with the intended use,’’ he said.
‘‘Your accountant will do this work for you to ensure you comply with the IRD.’’