Chartered Accountants Australia and New Zealand (CA ANZ) is welcoming moves from the IRD to fix a rule that has put New Zealand’s small business owners, such as independent financial advisers who work from home, on the hook for a GST bill when they sell their home.
The rule affects small businesses owners who are GST registered and who work out of their home, in their own name, rather than in a trust or company structure.
“The issue is that GST registered small business owners who work out of a home registered under their name, doing a small amount of admin and claiming very little GST against that home, become liable for a relatively large amount of GST when they sell that home,” says CA ANZ Tax Leader John Cuthbertson.
“The rule is legitimate, but it isn’t intuitive. It’s come as a surprise to many GST registered home sellers.”
Cuthbertson says that before 2011 there was a principal purpose test.
“It was quite simple, you were only charged GST if you used the home for business over 50% of the time,” he says. “After 2011, you had to charge GST on sale, even if your business activity was very small, say 5% to 10%.”
Cuthbertson says the proposed solution from Inland Revenue would allow a GST registered person or business to elect to keep an asset private.
“The owner would not be able to claim a GST deduction on the purchase of the house, but they would also not have to return GST on the sale. However, under the current proposal, they would still be able to claim GST on home office expenses,” he says.
“This is a good move from Inland Revenue, because it’s in the public interest for the rules to be as simple as possible, and not require professional assistance every step of the way.”