Tax Bites #18
About the Author:
MURRAY McCLENNAN
Director at Tax Central
A chartered accountant and a member of the International Fiscal Association and the Society of Trust and Estate Practitioners, Murray has over 30 years experience in tax.
This article focuses on GST issues relating to short - stay accommodation providers to whom I have offered advice recently.
GST REGISTRATION
As you all know GST registration is required where supplies in respect of a taxable activity or taxable activities exceed $60,000 in a 12-month period. The supply of short-stay accommodation is a taxable activity.
Therese owns a house in Wanaka. As her children have “flown the nest”, she decides to rent out the rooms for $150 per night through a local rental agency. The rental activity is carried on continuously or regularly, so it is a taxable activity. Therese receives rental income of $56,150 from the rental agency, net of the agency’s fee of $8,850. Therese believed that she was not required to register for GST. Alas, as the total value of the short- stay accommodation supplied in a 12-month period is $65,000 she was already deemed to be registered for GST.
Imogen also owns a house in Wanaka. Imogen converted a bedroom into a studio from which she teaches Pilates. She receives income of $40,000 per year from this activity. She also rents out another bedroom as short-stay accommodation for a gross rental of $28,000.
Imogen believed that she was not required to register for GST. Alas, as the total value from the two activities supplied in a 12-month period is $68,000 she was deemed to be registered. The consideration from both taxable activities is aggregated, the total value of supplies made exceeds the GST registration threshold. I am surprised how often businesses get this wrong.
AVOIDANCE
Pete let two rental properties for short-term stays. As the total turnover was less than $60,000 Pete was not registered for GST. Pete was concerned that with increasing visitor nights the turnover would exceed the threshold for GST registration.
Pete was told that he should transfer one of the properties to the trustees of a trust to keep the turnover of each house-owning entity/person below $60,000.
This approach may “sound like a plan”, but it would be an avoidance arrangement in terms of section 76 of the Goods and Services Tax Act.
If, however, Pete owned one house for short- stay accommodation and was considering the purchase of a second property to also let as short- stay accommodation, the purchase of the second property by trustees of a trust would not be avoidance.
RESTRICTED INPUT CLAIM
A partnership purchased a residential home in Queenstown for the purpose of providing short- stay accommodation. A consent was applied for and obtained from the Queenstown Lakes District Council to provide short-stay accommodation.
The consent limited the use of the property for short-stay accommodation to 180 nights in a calendar year.
The partnership claimed a secondhand goods tax input credit. Inland Revenue limited the claim to approximately half as the property could only be used for short-stay accommodation for 180/365 days in a calendar year.
Director
Tax Central Ltd
027 244-5365
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