On the hook for $150,000: Holiday home sellers warned over hefty GST bills
Tax experts urge due diligence on sale of short-term rentals.
Many homeowners who rent out their properties on short-term holiday sites such as Airbnb are unaware they could be hit with a hefty tax bill when they sell, a leading tax expert has told Oneroof.
Garreth Collard, an accountant at Epsomtax. com, said property owners who make more than $60,000 a year from short-term stays were required to register for GST. However, not all were aware they may well be liable for 15% GST on their capital gains when they sell – a bill that can run as high as several hundreds of thousands of dollars.
“We have two clients that would be on the hook for 15% on over a million dollars each,” Collard said.
He told Oneroof he advised clients who let the properties out for short-term stays to keep their earnings below the $60,000 GST threshold where possible.
When they start making $5000 a month regularly, they need to take stock, he said. “We need to be talking before you hit that threshold. Well before.”
Sometimes homeowners try to fly under the radar and hope the IRD won’t catch them, Collard said. “I have one client from overseas who contacted us about it. We broke the bad news to them and said, ‘Here are some options.’ We just didn’t hear from them again. Some are just hoping the IRD won’t pick up on it. It’s a skeleton in the closet. If [the IRD] does an audit at some later stage, it will fall out,” he said.
“The people getting caught are the ones who don’t have a property accountant. We get some doozies via email and over the phone at times. Half-truths or outright falsehoods [learned from online groups].” Property accountant Ross Barnett, of Lifetime, also receives enquiries from clients who want to turn their homes or rental properties into short-term holiday lets. He had one who wanted to let their own home on Airbnb while overseas. Barnett said the owner would have to pay $300,000 in GST on any capital gains. When homes registered for GST are sold to another Gst-registered entity, the GST is zero rated, meaning there is no payment to make. It’s only when the property is sold to a residential buyer or investor that GST needs to be paid to the IRD.
Ordinary home purchases and sales for owner-occupied or residential rental use were exempt from GST, said Collard.
It’s not just homeowners who put their properties on Airbnb or other short-term letting platforms who may be liable. Tax lawyer Julia Johnston, of Johnston Law, said many lifestyle property owners register for GST to claim expenses.
It’s not unusual for homeowners to voluntarily register for GST either so they can claim back GST on everything from hay supplies to linen hire.
Once they do, they pull the property into the GST net and may have to pay GST when they sell, said Johnston.
“In general, if you don’t need to GST register, I would suggest not doing so. The cost of compliance is high,” she said. Johnston warned Gst-registered vendors that pricing their home to cover their GST bill might not work, with buyers likely to only pay market value.
She also highlighted that homeowners who have deregistered their property for GST are still liable pay 15% on any capital gain they made during the period they were Gstregistered.
Some properties classed as “mixed use” could also be liable, Johnston said.
“Take a couple who live in their own home, and they might have a second, we’ll call it a granny flat, which they rent out. Do they know that they have to pay GST on the sale of that property?”
Holiday homeowners might get themselves into trouble when they register for GST to claim expenses for when they let it out, maybe a couple of times a year. They may not realise that the sale of the home will be subject to GST. The real estate and tax experts Oneroof talked to said buyers should also be GST aware.
“Residential property sales do not usually include GST, but there are exceptions if the vendor or the buyer is GST registered,” said Belinda Moffat, chief executive of the Real Estate Authority. “Before committing to any property deal involving GST, REA recommends consumers talk to a tax professional.”
At the time of writing, more than 200 residential properties for sale on Oneroof were advertised as requiring the buyer to pay “GST if any” on top of the purchase price. Many were lifestyle properties, but some were ordinary homes that have been used fully or in part to run a Gst-registered business. Real estate agents and lawyers are required to warn buyers if they are liable for GST on the purchase price.