Sole traders potentially affected by a requirement to claim GST on their holiday homes can breathe a sigh of relief this summer, knowing that claiming and returning GST on rented holiday homes may soon be optional.
The change is said to be one in favour of the taxpayer, addressing an unexpected outcome. I would agree that having the option to claim or not to claim gives the taxpayer flexibility.
But is there then a continuing unfair advantage to those sole traders who are GST registered?
Claiming GST on a property gives a substantial one-off GST refund. Enthusiastic tax refund-seekers will see a one-off benefit to a GST claim, but usually do not see the consequences down the track of having to pay the GST back later when they want to sell the property or change its use.
What about the cost to the customer?
An extra 15 per cent on your nightly or weekly accommodation charge might sway them to the competition down the road. Consider carefully your soon-to-be choice.
The unintentional law change is due to the redefinition of dwellings and commercial dwellings in the act.
A person making taxable supplies of a commercial dwelling (renting a holiday home to the public) is allowed to claim GST on it.
To stop people claiming large GST refunds, you are allowed to claim the GST on your holiday home only if you meet the compulsory GST registration requirement.
This means your business must be making sales of more than $60,000 a year.
Most of those people who offer their holiday homes to the public would not meet that criteria, meaning they cannot claim GST on the bach.
The concern is where someone has a separate business operating in their personal name that meets the compulsory requirement ($60,000 in sales) for GST registration. The holiday home is then unintentionally drawn into the GST net as well.
The intended changes mean you will have the option to include the holiday home in your GST return if you are already registered for GST and the holiday home returns less than $60,000 a year in sales.
To save confusion, it may have been better to say no GST claims on holiday homes returning less than $60,000 a year, effectively drawing a line in the sand, but maybe that change will come later.