You must return GST output tax when you either:
- sell your residential rental property
- change its use from GST taxable to non-taxable (exempt).
An example of change of use would be when you go from renting out short-stay accommodation to long-term renting. Short stay renting is GST taxable but there's no GST to pay when you rent out long-term.
If you’ve:
- sold your residential rental property, you need to return GST output tax on the sale price
- stopped short-term renting, you need to return GST output tax on the market value of the property
- bought your property with the intention of selling it, then decide to rent it out long-term, you may need to pay back any GST you’ve claimed.
Sometimes you may not have got a full GST claim for a property you buy (input tax). There are rules that allow an additional adjustment for the unclaimed part of the purchase.
Ahurewa buys a property to use for short-term renting.
Because short-term renting is a taxable activity, she registers for GST.
Ahurewa must return GST on the short-term rental income received in each GST return. She can also claim GST on the expenses used, or available for use, whilst providing her short-term rental accommodation.
When Ahurewa sells the property she must also return GST on the sale price.
Garfield is a GST-registered property developer. He buys a residential property for his property development business.
After developing the property, he decides to rent it out long-term rather than sell it.
Garfield has changed the use from 100% taxable to 100% non-taxable.
Because the property is no longer being used for making taxable supplies (ie he’s not trying to sell the property anymore), Garfield will need to make a GST change-in-use adjustment. He’ll need to do this in the GST period following the change of use.
In October 2012, Peter acquires a luxury boat for $800,000 plus GST. On acquisition, he estimated that the boat would be used 100% for charters (a taxable activity). As a result, full input tax credit is claimed.
For the second adjustment period, the boat was only used 80% for taxable activities.
October 2012 (boat acquired)
The percentage of intended use is 100%. The amount of input tax claimed is $120,000, which is $800,000 x 15%.
March 2013 (end of first adjustment period)
In the first adjustment period of 6 months, Peter used the boat 100% for charters. As this is the same amount as his intended use, no change-in-use adjustment is required.
31 March 2014 (end of second adjustment period)
The second adjustment period lasts for 12 months and ends on 31 March 2014. In this period, Peter used the boat 80% for charters and 20% for personal use (a non-taxable activity). As his use of the boat for taxable activities has changed by more than 10%, Peter must make a change-in-use adjustment.
The percentage of actual use over the 18 months since Peter acquired the boat can be calculated as such:
(100% × 6 months/18 months) + (80% × 12 months/18 months)
33.33 + 53.33 = 86.66%
The percentage of actual use can then be used to calculate the change-in-use adjustment.
(Original intended use percentage - percentage of actual use since acquisition) × original input tax deduction
For Peter, this is:
(100% - 86.66%) × $120,000 = $16,008
In the second adjustment period, Peter must account for $16,008 output tax for the non-taxable use of the boat.
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