GST on sub-division development

Question

Hi Julia I have a beach property which is currently rented for holiday rentals (I suppose this is no different to residential rent??) I am not registered for GST and I do not use the property for my personal use. I want to sub divide the property and build 2 units and then continue to receive holiday rentals on the 2 new units – again there will be no personal use. I am looking at spending $800,000 on building the 2 new units. Can I claim the GST on the building/architects fees and construction costs if I transfer the title into a trust/company and register for GST or just register myself for GST. Would this effect future holiday rentals ie GST on the income. My intention is to not sell the 2 new units Preferably to pass them on in my will to my 3 boys (hope this is years away) but would still like to know the gst ramification (on a future building and land sale) if I changed my mind and decided to sell but not within the next 5 years. If I need to set up a shelf coy / trust arrangement what would be the approximate cost??? Thanks for your time Glenn

Answer


The right to claim GST is directly related to the obligation to charge it. You can only claim the GST back on construction costs etc if you are building to sell or use for a business. Holiday rentals on such a small scale would not be considered a business other than domestic rentals which are input taxed ie not subject to GST so no right to claim GST back on inputs.
Transferring the properties out of your name is a stamp duty and CGT problem for you, where as if your boys inherit them they will inherit your CGT liability but not payable unless they sell and they should not be up for stamp duty when transferring them from your name after you die. There is no tax benefit at all in transferring the properties into a trust or company, in fact it is the reverse.
If you build them for domestic (holiday included) rental then you don’t have to register for GST because your normal turnover of GSTable supplies is under $75,000. If you are not already registered for GST you are not required to do so just because you choose to sell a property you built with the intention of holding as a rental. Section 23-5 states that if the annual turnover of supplies you make in the normal course of your enterprise, exceed $75,000 you must register for GST. Section 185-25 excludes from the calculation of annual turnover the supply of a capital asset. Building the property for rental then selling, is the supply of a capital asset and not included in the annual turnover. Section 118-15 excludes from annual turnover input taxed supplies so any domestic rent received is not included in annual turnover. So you could even sell them in less than 5 years as long as you didn’t build them to sell.
In short don’t register for or claim GST and don’t transfer the property into another entity, as you will only end up worse off tax wise. What you are doing at the moment is just fine.

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