Farmers need to look at GST rule changes
Coral Phillips, Associate at Cooperaitken 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 answer is ‘‘Yes’’, changing GST legislation from April 2011 means this rent income is subject to GST too.
Ms Phillips explained with the changing legislation around the definition of commercial rental properties, beach houses are a concern. A commercial rental property now includes residential properties if they are rented out.
For example, Ms Phillips said, "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 out your beach house short-term, you must now return GST to the IRD on the income and expenses for the beach house".
Ms Phillips cautioned that as many people advertise their beach properties on the internet, perhaps on the "Book-a-bach" site or similar it will be very easy for the IRD to trace.
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.
Ms Phillips also advised "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 per annum 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".
Ms Phillips advised a solution to these GST changes could be to transfer the property to another entity which is not Gst-registered.
‘‘If this might apply to you, we suggest you talk to your accountant.
Mr Peter Hexter, Director Cooperaitken added "we have seen many changes to GST over the last 18 months. ‘‘Back in October 2010 the rate increased from 12.5 percent to 15 percent which had an impact on farmers’ cashflow.
Mr Hexter continued "In April 2011 land transactions between Gst-registered persons became zero rated.’’
Mr Hexter 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.’’
CHARGES: Changed legislation in April 2011 means rent income is subject to GST.