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.
Thank you so much for your help! I would like to make special mention of how impressed I am with the level of service GRA provided, start to finish. You are all highly professional and helpful and you communicate instructions in a clear and concise manner which made it simple and stress free. I also greatly appreciate that you were able to assist us within the limited time frame.
- Jennie, December 2021
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