Simple GST thoughts and information - what should you pay for an Airbnb or a property where the vendor is GST registered?

19 November 2020

 

Simple GST thoughts and information - what should you pay for an Airbnb or a property where the vendor is GST registered?

 

When completing a purchase of a property, always ensure the vendor has filled out their GST status.  This is on the front page of the Sale and Purchase agreement, and it needs to be clear if the vendor is GST registered or not.

  • Blank doesn’t help!
  • Also, both crossed out doesn’t help.

If the vendor’s GST status is not filled out, you might not be able to rely on the warranties later.

  1. If you are a normal, long term hold property investor, buying a normal rental that will be rented long term.  You will not be GST registered, and will not have to account for GST.  So always ensure the sale and purchase agreement has the amount then GST inclusive.  For example, $690,000 Inclusive of GST.  This is the amount you will pay for the property.
  2. If the vendor is GST registered, consider the True value of the property.
  • 5 identical houses on the street
  • 2 sold as personal homes for $600,000.  Normal inclusive of GST sale.
  • 2 sold as rental properties for $600,000.  Normal inclusive of GST sale.
  • But the last one, is Airbnb.  The vendor is GST registered and wants to sell it for $600,000 + GST.  So effectively $690,000 inclusive of GST.

This isn’t a reasonable value and the vendor is trying to be tricky.  In a normal sale, they should sell for $600,000, pay the GST of $78,000 approximately and be left with $522,000 approximately after GST.  Instead, they are trying to use GST and zero rating to confuse people, and to improve their sale value by $78,000 after GST.

 

 

A)  If not GST registered buyer – you would offer $600,000 inclusive of GST or around this price, depending on what you wanted to offer.  You would pay the $600,000 for the property.

B)  If GST registered buyer – you would offer $522,000 approximately, plus GST.  This sale would then Zero rate, meaning the vendor doesn’t have to pay GST to IRD, and you can’t claim GST from IRD.  You would pay $522,000 for the property.

 

Kind regards

Ross Barnett

 
 
 
 

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