Tax Updates: 29 April 2024

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at richard@gilshep.co.nz.

Removing GST goods from the tax base

It’s been another quiet week, so no updates of interest for you to read during your morning coffee and cake break, sorry.

Instead, I thought I’d provide another useful (solely in the writer’s opinion, mind you) reminder to those of you who, either yourself or your clients, may presently have assets within the GST base that were neither originally acquired for nor have been used for the principle purpose of making taxable supplies.

The classic scenario would be your beach house, which, sometime after purchasing, you decided to Airbnb over the Christmas holiday period. You use it more for your own purposes (regular weekends away escaping the big city) than for Airbnb, but the revenues derived from the Airbnb activity have required you to register for GST. Eight years ago, when you registered, you claimed a GST input tax credit relative to the purchase price of $600,000 ($78,261). However, the property has tripled in value over the years post-Covid (with everyone now wanting a beachfront escape in the same location), with the consequence that if you either wish to sell now to take advantage of the capital gain or you simply wish to cease the Airbnb activity, you’re facing a GST output tax exposure of $234,783.

Prior to the enactment of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Bill, you were essentially stuck between a rock and a hard place – particularly if you simply wanted to cease the rental activity, as you would not have the disposal proceeds to fund the output tax liability. However, section 91 of the GST Act 1985 now provides a two-year window (April 1 2023, to April 1 2025), where you can elect to notify Inland Revenue (IR) that you wish to remove the asset from the tax base by paying back the GST originally claimed.

To take advantage of section 91, the asset must:

• Have been acquired before April 1 2023, and you’ve either claimed a deduction for the purchase (or for any capital improvements made since purchase) or acquired the asset as a zero-rated supply.
• Not have been acquired for the principle purpose of making taxable supplies.
• Not have been used for the principle purpose of making taxable supplies.

Tick the three boxes, file the requisite election notice (simply a web message via MyIR prior to April 1, 2025, will suffice), pay back the original GST claimed in the elected GST period, and your asset is then removed from the tax base. Then, you could either sell the asset or cease the activity with no GST consequences in relation to the asset.

Note that you will still be required to pay GST on the Airbnb income (assuming you will still exceed the annual $60,000 threshold) and are still entitled to claim GST input tax credits on operational costs, such as advertising, insurance, rates, etc.

If you need any help with taking advantage of section 91 (or simply understanding if it is an option for you), then please sing out.

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.