Articles by Anthony Lipscombe.
I want to close the year by highlighting a couple of positive developments in the GST rules – one that came into effect earlier in 2022, and one that is proposed to come into effect from next year.
Earlier this year a long-standing issue that prevented GST from being claimed on asset transfers within a group structure was resolved. To put the issue in context, I will start by explaining the problem.
Let’s say you own a large piece of land that was originally bought with the intention to hold long term. Now you want to exploit the development potential by subdividing and building multiple dwellings on the land with the intention of selling them. This is an activity that is subject to GST and also one that entails risk, so you want to shift the land into a GST registered limited liability company. Under the old rules, though, the GST registered company would be prevented from claiming any GST at all on buying the land from an associated long-term owner.
From 1 April 2022, that has no longer been the case. A GST registered company can claim GST on buying land from a non-registered associated vendor. An important point of detail is that the amount of GST able to be claimed is limited to the original cost of the land incurred by the associated vendor, but that is infinitely better than getting no claim at all.
The second development I wish to highlight is an impending change that is currently in draft form. This rule is designed to allow taxpayers to keep assets (including property) out of the GST net where there is some taxable use but the principal use is private. Again, to frame the issue let me outline the problem.
Let’s say you are GST registered as a contractor. At the same time you own a holiday home that is largely used for your own private purposes, but you occasionally rent out via Airbnb. Under current rules, the fact that you are using the property to generate revenue from the provision of short-term stay accommodation means that the property is dragged into the GST net. As a consequence, GST is payable on sale or ceasing the activity. You do not have a choice as to whether the property is dragged into the GST net or not.
Under the new proposals, you can choose not to bring the property into the GST net. As long as the principal purpose is to use the property privately, you can keep the property out of the GST net and therefore not face GST payable on sale. At the moment there are important details to be smoothed out as the legislation works its way through the process, but we see this as a positive development.
If you have any questions about these GST changes, contact your GRA client services manager. (Or if you are new to our practice, book a free initial meeting to see how we can help you.)
In closing, best wishes for the Christmas and holiday period.
This letter is to express my appreciation for the assistance and encouragement of both Anthony Lipscombe and particularly John Heaslip over the last financial year. The period since activating my trading trust has been one of considerable stress, as well as personal development, as I embarked on this as a relative business neophyte with virtually no awareness of the contemporary requirements of running a business, particularly the financial records aspect. During much of this period I have therefore felt considerable out of my depth. However I have been lucky enough to have had the benefit of the advice and support of John Heaslip in rationalizing what was a fairly chaotic set of records of the first year property trading. I am able to say that John in particular, has been unstinting in his attention to my needs and has done so in a manner which has never alluded to my extremely rudimentary grasp of managing a business, or even of being unable to set out a spread sheet properly. The result of the above guidance is that now, although my trading trust would still not be able to operate without the advice of GRA, I do least feel a sense of satisfaction that I have got to my present point without major disaster and that my property trust does now have some kind of firmer basis for any future activities - Name withheld by request
Gilligan Rowe and Associates is a chartered accounting firm specialising in property, asset planning, legal structures, taxation and compliance.
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