How to avoid buying an apartment with GST
Some apartments have GST connected to them because when they were initially purchased, they were purchased as a commercial property.
If it wasn’t even intended for commercial purposes or receiving income for it – you will still owe GST.
You need to avoid this by talking to your accountant and figuring out whether it is a good idea to sell or what other options you may have.
Good day, Andrew Murray from Apartment Specialists talking about Auckland apartment sales.
I just recently had an owner sell an apartment that was in a residential tenancy and then they came to selling the apartment and I told them to go and ask their accountant for advice and they found out that they had GST owing on the apartment and they couldn't figure it out.
To everybody else, on the surface it looked like, why would you owe GST on an Auckland apartment? Why would they owe it? It's in a residential tenancy. But it came down to when they purchased the apartment. Some apartments have GST connected to them because when they were initially purchased, they were purchased as a commercial property.
What I mean by that is, the owners would have been receiving GST. So, a lot of people, when they first bought their apartments, weren't to sure what they were buying, especially apartments with GST and that kind of thing and so they found out when they come to sell the apartment, that there is a GST component and this really, really changes their decision making process.
If you think about it, GST being on an Auckland apartment, if you sell it for say $400,000, well that's 15% so that's $15,000 x 4, that's $60,000 less than you thought you would have got in the hand. The way to tell that is, when you purchased your apartment, was it being used commercially, or was it intended to be used commercially?
Was it in a hotel lease, or was it in a lease of some form, and were you receiving GST on that income? So, if it was in a hotel and you are receiving income, that means there is a GST component so that means you owe GST.
What happens is that basically, when you bought the apartment and it was sold as a commercial apartment with a commercial lease on it, you would either have had the price reduced by the GST factor which back then would have been 5.5% or your accountant would advise you that you can claim the GST.
Often, having an accountant you let them do what they do and they save us money, but we don't always understand exactly what they did. So, they would have claimed that $12,500 back and you would have got that money. So, when it comes to sell the property, you have to pay that GST back.
There's a little bit more to it than that and I'll explain that in my next podcast which is, when you have GST on an apartment but you don't actually have to pay that GST back and I'll be talking about that later. The key thing is, if any of this is actually ringing a bell - you've purchased your apartment.
Make sure you ask your accountant because they'll give you advice and let you know if there is a GST component attached to your apartment and that will change, no doubt, your decision making process on whether it's the best idea to sell your apartment at this current time or what other things can be done.
I hope that helps. Talk soon. Cheers!