Tick tock, time is running out to opt certain assets out of the GST net!

By Viola Trnski & Robyn Walker

While it may seem like a good idea to register for and claim GST when purchasing an asset with some business use (for example, a holiday home that may sometimes be rented out, a home office within a private family residence, or a property within a larger organisation where it is unclear how it will be used), when it comes time to sell, some owners may kick themselves when facing the subsequent GST obligations.

GST decisions (and consequences) are usually irreversible... but in this case, there is a limited opportunity to utilise the transitional rule in s 91 of the GST Act, turning back the clock and opting the asset out of the GST net.

This transitional rule overrides the default position for such assets, where if GST is claimed on even a portion of the purchase (or the purchase was zero-rated) there is a GST liability triggered on sale of the asset on the entire value of the asset. While some remaining GST input credit may be available at the time of sale, it is still common for sellers to be left out of pocket to some degree, particularly for appreciating assets like property.

To take advantage of the transitional rule there are four key requirements that must be met:

1. The asset must have been acquired before 1 April 2023, and
2. The asset must not have been acquired for the principal purpose of making taxable supplies, and
3. The asset was not used for the principle purpose of making taxable supplies, and
4. GST input tax credits have previously been claimed, or the asset was acquired as a zero-rated supply.
   

Examples of common assets that you should review the GST status of include:

• A home office within a larger private family residence;
• A holiday home that may have had some use as rented out short stay accommodation but is primarily a family bach; and
• Buildings used by businesses making a combination of taxable and exempt supplies (for example a business holding some residential property which may have been acquired as part of a larger land purchase).
  

This list is not exhaustive – if you have any assets where a portion of GST has been claimed historically but is primarily used for GST exempt/non-business use then it is worth thinking about the transitional rule now and whether you should make an election.

In order to use the transitional rule, the election must be made before 1 April 2025 by notifying the Commissioner of Inland Revenue in an acceptable way of the election, the election date and details of the election. We recommend this is done by way of a letter loaded into myIR by 31 March 2025.

If an election is not made, then from 1 April 2025 the sale of any asset with business use that had GST claimed on purchase will be subject to GST on sale. The transitional rule does not include any GST claimed on operating costs (for example, rates, utilities and insurance).

If you think you may be eligible to use this transitional rule, we recommend you act now to confirm that you can use it and undertake the necessary calculations to determine the amounts owed to Inland Revenue. The amount would become GST payable. We would expect that Inland Revenue will be open to providing an instalment arrangement for taxpayers who need it.

31 March 2025 will be upon us in no time, so start considering this rule sooner rather than later as there will be no extensions given to this deadline.

Please contact your usual Deloitte advisor for more information.