HOLIDAY HOMES & GST

Taxpayers who own holiday homes which are rented out should be aware that such rental will not constitute the supply of accommodation in a dwelling for GST purposes and accordingly will be subject to GST when the owner is a registered person or deemed to be registered person.

Therefore it is crucial that such properties are not held by persons who carry on taxable activities, such as commercial letting as the value of combined supplies could breach the $ 60,000 GST registration threshold.

This can have disastrous consequences as the entire sale proceeds of the holiday home becomes subject to GST with the input tax credit being limited to the tax fraction of the original purchase price. The GST registered person will only ever get the personal use percentage of that input tax credit on ultimate disposal of the property and of course the government collects 3/23rds of the overall gain. This is a highly undesirable situation for most.

Taxpayers with valuable holiday homes could easily breach the $ 60,000 GST registration threshold especially when the holiday homes are owned in a Family Trust as supplies for less than a market value to associated persons (e.g. family members of the Settlor) are deemed to take place at market value for GST purposes.

Given that only the supply of accommodation in a dwelling occupied by a person as their principal place of residence is an exempt supply, arguably occupancy of a holiday home by beneficiaries of the Trust creates taxable supplies.