TAX TIDBITS
Issue Thirty One, August 2009
In this months issue:
GST on change of use of an asset
Now:
Often an asset is purchased for use in a GST business activity and this activity is carried on for a period of time, and then circumstances change. This can be so for property developers when the market changes and the property cannot be sold, or for farmers that wind down their trading activity.
For developers, if it is a commercial property, the rental income is still a GST activity, therefore there is no change in use for GST purposes, however if it is residential property there can be a problem as residential rental is exempt for GST purposes.
If the change is just temporary pending sale of the property, a periodic adjustment should be done to reflect the temporary change in use. If the change in use is permanent, an output adjustment is required to repay the GST. As long as there is no contemplation of selling the asset, the change of use adjustment can be based on the lower of cost price and market value. The entity must remain GST registered for this to be an option. If there is no on-going GST activity, the change of use will effectively result in de-registration for GST which will trigger a GST liability based on market value only, which is usually substantially higher than the cost price.
Planned:
The Inland Revenue Department is planning to change the rules to require “change of use” adjustments to be based on market value in all circumstances.
Please contact us if you think this applies to you.
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Disclaimer Information contained within this document is of a general nature and does not constitute advice. Readers are cautioned not to act or reply on it without first seeking professional advice. The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
