A vendor is GST-registered because she runs her apartment as short-stay accommodation. She now sells the apartment. What does Inland Revenue say about GST on the sale?
Correct Answer
D) She must return GST output tax on the sale price.
Short-stay accommodation is a GST taxable activity, so a registered host charges GST on income and claims GST on costs. Inland Revenue's example says that when such a host sells the property she must also return GST on the sale price. The listing salesperson should ensure the GST position is settled with the vendor's advisers before pricing and marketing.
Why This Is the Correct Answer
The apartment was used in a taxable activity, so its sale is a taxable supply that attracts GST.
Why the Other Options Are Wrong
Option A: No GST applies because the sale of a residential property is always exempt.
Inland Revenue says a registered person who used the property for taxable short-stay accommodation must return GST on the sale price.
Option B: GST applies only to the profit she makes over what she paid for it.
GST output tax is returned on the sale price, not only on the gain.
Option C: The buyer must pay GST directly to Inland Revenue instead of the vendor.
The GST-registered vendor returns the output tax; there is no reverse charge on this kind of sale.
Background Knowledge for Finance
Source: https://www.ird.govt.nz/property/renting-out-residential-property/gst-and-renting-out-residential-property/gst-and-selling-or-changing-the-use-of-a-rental-property
Exam Tip for Finance
Ask every vendor whether they are GST-registered and how the property has been used.
Common Mistakes to Avoid on Finance Questions
- •Assuming no residential property sale can ever involve GST.
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