GST can be one of the most confusing and complex aspects to deal with in a property transaction. Every situation is unique, which is why it is essential to obtain specific advice from both your solicitor and tax adviser at the earliest opportunity. Prior to drafting any agreement, the GST implications of the transaction need to be considered fully, as this is one area where there are serious consequences for both parties if it is not dealt with correctly.
Vendors: If you are registered for GST then it is likely that you will need to return GST on the sale price of any property however in most cases this will depend on the GST status of the purchaser (discussed further below).
If you are not registered for GST but have been using the property for some form of taxable activity (such as short term rental or commercial leasing) then you need to be careful that you are not deemed to be registered for GST due to your actions.
If you are in any doubt whatsoever as to your GST status as a vendor then you should discuss this with your tax adviser and/or us.
If you are GST registered, or potentially deemed registered for GST, then the safest course of action for you is to have the price as being "plus GST (if any)" as this puts the obligation to pay any GST onto the purchaser should GST be payable in respect of the transaction.
Purchasers: As a purchaser, in order to be GST registered to acquire the property, your purchasing entity will need to be intending to carry out a taxable activity from the property from settlement onwards. If so, you will need to then obtain GST registration and a GST number prior to the settlement date. You will also need to give confirmations to the vendor that you are GST registered, that you intend to carry out a taxable activity from the property, and that you do not intend to personally reside at the property. If these confirmations can be given and the vendor is also registered for GST then the sale of the property should be zero rated for GST purposes.
If the price under the contract is "plus GST (if any)" then as a purchaser, you will have to pay GST unless you can comply with the above zero rating requirements.
There are certain instances where a residential property may be included as part of a property being sold, with the balance of the land being useable for a taxable activity. In this instance, complicated and different GST rules apply. We can work these through with you if the circumstances arise.
We see a huge number of mistakes made in contracts around GST. Such mistakes can have significant financial implications for either party so it is absolutely critical that the GST situation is investigated and understood prior to a contract being entered into.
We at Cavell Leitch have considerable experience in this area of property transactions and maintain excellent relationships with specialist tax advisers with expertise in the area of GST. We would be very keen to assist you with your next property sale or investment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.