An investor buying a house to rent to long-term tenants suggests she will register for GST so she can claim GST back on the purchase price. What does Inland Revenue say?
Correct Answer
A) She cannot claim GST, because long-term residential renting is exempt.
Inland Revenue says that if you buy a property for long-term residential rental you cannot claim GST. Renting out residential accommodation long-term is an exempt supply, so no GST is charged on rent and none can be claimed on expenses. Registering wrongly and claiming GST leads to repayment and possibly a larger market-value amount.
Why This Is the Correct Answer
An exempt activity such as long-term residential renting does not allow GST input claims.
Why the Other Options Are Wrong
Option B: She can claim the GST once registered, because renting is a taxable activity.
Long-term residential renting is an exempt supply, so it does not support a GST claim on the purchase.
Option C: She can claim it only if the rent she charges will include GST.
GST cannot be included in long-term residential rent, so this route does not exist.
Option D: She can claim half, because the property is part private and part business.
There is no partial claim for a property used for long-term residential renting; that use is exempt.
Background Knowledge for Finance
Source: https://www.ird.govt.nz/gst/charging-gst/gst-on-property-transactions
Exam Tip for Finance
Long-term residential rent = exempt; short-stay accommodation = taxable.
Common Mistakes to Avoid on Finance Questions
- •Treating every rental as a GST taxable activity.
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When assessing a mortgage application, which factor is typically given the highest priority by New Zealand lenders?
James has been contributing to KiwiSaver for 4 years and wants to withdraw funds for his first home. His KiwiSaver balance is $45,000, but $15,000 consists of government contributions and employer matching. What is the maximum he can withdraw for his house deposit?
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