THINKING OF SELLING YOUR LEASED APARTMENT - GST
ON THIS?
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.
Example
- Bill and Marie
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.
Zero-rating
"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:
Note
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.
Did I buy a
zero-rated apartment?
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:
- sign a management agreement
about renting it out?
- sign any papers about tax or
GST?
If so, you could have been
registered for GST and your apartment zero-rated.
What does this
mean when I sell the apartment?
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:
- the original management
agreement has expired and you haven't negotiated another lease with the
management company, or
- you or a member of your family
moved into the apartment or you rented it to tenants directly,
you may have to pay GST.
What should I
do?
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.
STUDENT LOAN
VOLUNTARY REPAYMENT BONUS
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.
Note- The bonus applies if you make voluntary repayments that total $500
or more. This is on top of what you need to repay for a tax year (1
April to 31 March). Your loan balance will then be reduced by an
additional 10% of your voluntary repayments. This means that if you
make voluntary repayments that come to $800, you would receive a
voluntary repayment bonus of $80 and your loan balance would be
reduced by $880.
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.
When You're Eligible for the
Voluntary Repayment Bonus
You're eligible for a voluntary repayment bonus if:
- you're up-to-date with your repayments and filing your income tax
returns (if you're required to)
- your loan balance with Inland Revenue is $550 or more at the
beginning of the tax year (1 April), and
- your voluntary repayments for the tax year total $500 or more.
Please note that voluntary repayments made to StudyLink will not
qualify for a voluntary repayment bonus.
How it Works
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
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.
|
HOW
CAN A FAMILY TRUST HELP YOU?
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:
- Protection against professional liability claims
- Safeguarding your assets from financial disaster
- To gain tax advantages (in certain circumstances)
- Preparing for possible capital gains or death taxes
- Maintaining confidentiality about your financial affairs
- Preparing for the time you might need residential care planning
- Protection of assets against unexpected business debts
- Reducing the chance of relationship property claims by future partners
- Providing for your family even after you’re gone, as a mechanism for
estate planning
