GST on leased hotel
Question from Matt updated on 21st March 2014:
If I purchase a 'going concern' leased hotel apartment that is GST zero rated and then decide to terminate the lease and rent the property medium to long-term through a management company, then will GST be pay immediately on the purchase price due to the change of use? Or is GST payable only worked out at buy/sale time?
Our expert Mark Withers responded:
Matt, you have identified one of the "traps" with these types of properties. These are commercial dwellings included in a person’s taxable activity for GST but can equally be rented as standard residential tenancies. If you acquire a property zero rated you must have agreed to be GST registered and to continue to use it in a "taxable activity" for GST. If you then exit the property from that taxable activity, in this case by renting it domestically, a deemed supply of the property occurs at the market value of the property triggering an immediate requirement to account to Inland Revenue Department for the GST component of the deemed supply.
Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.
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