Investors in $2.2m row with IRD

Apartment investors who bought Queenstown units developed by Aucklander Tim Manning are caught up in a tax struggle, after Inland Revenue sent out notices last month demanding $2.2 million in unpaid GST.

Sydney and Hong Kong investors were surprised to get tax demands and 15 owners have banded together, engaging New Plymouth lawyer Grant Shand to oppose them.

But Shand said some had paid out immediately - about $30,000 each.

The 75-unit Greenstone Terrace at 716 Frankton Rd was developed by two subsidiaries of Manning's Taradale Properties, Greenstone Terrace and GT2.

Many Auckland Taradale developments are at the centre of leaky homes issues.

A third of the 153-unit Sacramento housing complex in Botany Downs in East Auckland is so rotten it must be bulldozed and rebuilt, according to the court claim lodged late last year by owners seeking $19.2 million from those involved in its design, development and construction.

Residents of the Taradale-developed 10-unit Ponsonby Gardens have been fighting for $1.2 million for repairs.

Taradale's other leaking developments included The Grange in Albany, Vista Rosa in Mt Albert and West End in Grey Lynn.

The Queenstown units at Greenstone Terrace were sold in 2002 as "going concerns" for short-term tourist accommodation. The sales were therefore exempt from GST and units were supplied with equipment for a hotel-style business operation.

But a few months later, after the management firms associated with Manning went into liquidation, the units were rented out privately.

The IRD said the owners' GST registration would be cancelled and GST charged on the properties at one ninth of today's market value.

A Sydney investor said she paid $250,000 in March 2002 for her unit after marketing material promised attractive returns.

"Purchasers were led to believe they had bought something as a going concern, which it obviously never was," she said.

"All the furniture, sheets, towels and kitchen equipment was there and there were marketing letters suggesting that the units could be sold as a going concern."

No GST applied on the purchase because her unit was to be used as a business for overnight or short-stay tourist accommodation.

She did not find out until much later that the unit could not be classified as a going concern.

The IRD found the change of use when it undertook a "routine tax audit" on the clients of Queenstown accountants McCulloch & Partners.

Last month, the Sydney investor got a letter from an IRD investigator saying the change in her unit's use meant money was outstanding.

She said she would challenge the tax demand, which she estimated would be about $30,000.

Her unit is rented as a long-term residential apartment at $300 a week.

A Hong Kong unit owner said he paid $295,000 for his Greenstone unit.

He has already lost money on it and would also challenge the IRD demand.

Shand said: "We'll see whether the clients can persuade Inland Revenue to abandon this, or we'll look to the Taxation Review Authority or the district courts for remedy."

He said apartment owners were not liable for the GST payments because they did not buy their units as going concerns.

"It all comes back to whether it was the sale and purchase of a going concern.

"I say it was never a going concern because the development didn't have resource consent to enable it to be let for less than three months," he said.

In its letters to property owners, the IRD said the management lease with College Property Management lapsed in November 2002 due to the management company's difficulties and the lack of a consent from the Queenstown Lakes District Council.

Unlucky Greenstone

* Investors bought into the 75-unit Queenstown apartment project in 2002.

* Guarantees were made of rental returns of 7 per cent a year.

* A professional manager was to take care of the properties.

* The management firm folded.

* Owners rented out their apartments privately.

* Now, Inland Revenue wants about $30,000 a unit in GST.

* Some owners have paid but others are fighting.