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McLEAN AND CO.
Student Loan Voluntary Repayment Bonus
Many people have bought apartments where the purchase included a lease to a management company, often with a guaranteed rental arrangement. In many cases these apartments were sold as "going concerns" with the GST charged at 0%, or "zero-rated". There are conditions attached to this type of apartment. You need to know what they are or you might get an unexpected GST bill when you sell your apartment.
In 2006, Bill and Marie bought an apartment as an investment. The apartment was leased to a management company and was "zero-rated" as a going concern. Bill and Marie signed a lease with the management company which set out conditions of use. They also signed some papers relating to GST. When the lease ended, Bill and Marie decided to sell their apartment rather than negotiate another lease with the management company. Their daughter moved in on a casual basis while the apartment was on the market. They were pleased to accept an offer of $255,000 which covered their mortgage, real estate fees and other expenses, and gave them a clear $20,000 profit. But when Bill and Marie told their accountant about the sale, they were shocked to find they had a GST bill of $31,875 (12.5% of the sale price). GST was payable because the apartment was no longer a going concern. The lease had ended and there'd been a change in the apartment's use. If Bill and Marie had checked the GST status of their apartment before they sold it, they may have avoided a costly mistake.
"Going concern" means the apartment is considered an active business. An apartment may be sold as a going concern if the sale includes a lease to a management company. The lease may provide a guaranteed income to the buyer over a set term.
These apartments are often marketed with statements like:
If you comply with the conditions of the management agreement and are registered for GST, the purchase price of the apartment will be zero-rated.
GST zero-rated means the price is reduced because the GST is charged at 0%.
It sounds like a great idea - you don't have to pay GST on the purchase price and there's no hassle with tenants because the management company takes care of renting the apartment. You may also have a guaranteed source of income. However, if you decide to sell your zero-rated apartment, or if you change your rental arrangement or the way the apartment is used, you may have to pay 12.5% GST and consider other tax issues.
An apartment can only be zero-rated
if both the buyer and seller are GST-registered and the apartment is sold
with a lease to a management company already in place.
When you bought your apartment, did you:
If so, you could have been registered for GST and your apartment zero-rated.
If you sell your GST zero-rated apartment with the original management agreement still in place, to a buyer who is also registered for GST, your apartment may still be a going concern. In this case you probably don't have to pay GST on the sale.
But, if you sell your apartment or have changed the way it's used, for example:
you may have to pay GST.
It is recommended that you check whether your apartment has been zero-rated for GST, and talk to ourselves before you make a decision about selling your investment apartment or changing its use.
The government has introduced a 10% student loan voluntary repayment bonus for voluntary repayments that total $500 or more in a tax year (1 April to 31 March). This will only apply to voluntary repayments made from 1 April 2009.
You don't need to make a voluntary repayment in a lump sum. You could make voluntary weekly repayments of $10 throughout a tax year instead of a one-off payment of $500, and still be eligible for the repayment bonus.
You're eligible for a voluntary repayment bonus if:
Please note that voluntary repayments made to StudyLink will not qualify for a voluntary repayment bonus.
You don't need to apply for the voluntary repayment bonus, but you do need to have met all your student loan obligations, including making your repayments by the due date, using the correct tax code, and filing your income tax returns (if you're required to).
After the end of the tax year, when we know what you needed to repay for the tax year, IRD will check to see if you're eligible. If the voluntary repayments you made during the tax year total a minimum of $500 more than your repayment amount due, then you'll get the voluntary repayment bonus.
If you're required to receive a personal tax summary (PTS) or file an IR3 income tax return, IRD will need to process these first before applying the voluntary repayment bonus to your loan balance.
If you're an overseas-based borrower you'll get your voluntary repayment bonus from May 2010.
IRD will send you a statement when the voluntary repayment bonus has been applied to your loan balance or you can check your loan balance online, go to "Get it done online" on the IRD Website.
If you repay your loan in full between 1 April 2009 and 31 March 2010, IRD will check whether you're entitled to the voluntary repayment bonus and add it to your loan balance after 1 April 2010.
From 1 April 2010, if you're finalising your loan, the voluntary repayment bonus is expected to be applied shortly after you've made your final payment.
To make a final repayment, you'll need to get a current loan balance. Go to "Get it done online".
You can then do either of the following.
|You can pay...||and...|
|the amount of your loan balance in full||once the voluntary repayment bonus has been applied to your student loan account, any overpayment will be refunded after 1 April 2010.|
|10/11ths of your loan balance
(divide your loan balance by 11 and multiply the resulting amount by 10)
as long as you're up-to-date with your repayment obligations, including using the correct tax code and filing your income tax returns (if required), this amount should cover your loan balance in full once the voluntary repayment bonus is applied after 1 April 2010.
If you're an overseas-based borrower any interest charged between the date of your final payment and the date the voluntary repayment bonus is applied will be reversed.
Family Trusts are like an insurance policy. Among other benefits, they are designed to protect you from an adverse event, if and when one happens.
People set up Family Trusts in NZ for a number of reasons that include:
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If we can assist further, please email McLean and Co as follows: