Q

I am buying a commercial property (a dairy). The vendor is a Trust and I will use my company to do the purchase. We are both GST registered. After the purchase I plan to run the shop and live in the property. The property is 1,366m2: of that the shop area is 258m2 and the residential area is around 170m2.

Someone has told me that I will need to pay GST for the residential area because I will be living in it. Is that true? If so, is there any way to avoid this? I haven’t bought the property yet: I’m still considering the purchase.

A

First, although not stated in your question, the sale and purchase transaction will be “zero rated” from a GST perspective. This means you may face having to immediately pay a GST adjustment in relation to the part of the property that you are going to use for residential purposes. This is because the application of the property towards residential use is not a taxable activity as far as GST is concerned.

However, it is not guaranteed that you would need to make such a GST adjustment. Whether or not you do depends on whether the vendor is treating the residential component of the property as a separate dwelling for GST purposes. When you have a property that is used partly for commercial and partly for residential purposes, it is possible for the owner to have distinguished between those two uses and only introduced the commercial part of the property into the GST net.

If so, then it is only the commercial part of the property that is zero rated, and
the residential part is seen as a separate supply and not subject to GST. If the residential part of the property is seen as a separate supply, then you will not have GST to pay in relation to it.

Following this, it is very important for you to understand whether the vendor is selling the whole property subject to GST or just the commercial part. Usually this can be indicated in the sale and purchase agreement. As always you should get specific advice as there may be intricacies outside of the facts provided that could influence the outcome. - Matthew Gilligan

Fire Risk Honesty

Q

I have a tenant that uses a cast iron ring burner connected to a nine kilogram LPG bottle for cooking purposes inside the kitchen.

The items used are ones that are typically used for camping outdoors. The tenant also has a praying altar inside a walk-in closet where she lights up candles as part of her ceremony. What possible insurance issues could I have if there was a fire? And what is the best way of addressing these problems with the tenant?

A

I think the best way of addressing these issues is to be direct and honest with the tenant. Firstly, running a cast iron ring burner in the kitchen is extremely dangerous and has the potential to cause a serious fire, which is a great risk to the property and to people in the building. You should advise the tenant that in order to prevent damage to the building or loss of life you are forbidding the use of the gas ring and LPG gas bottle inside the premises.

Lighting candles inside a small closet is also dangerous. A candle may contact flammable material, and in such a small space a disastrous fire could start. You could point out to the tenant that small battery-powered imitation candles might be useful as a replacement for actual candles. - Bernard Parker

Remediation Tax Issues

Q

I own a unit in a block which had some leaky home remediation done. I am in discussions with the IRD over whether this is capital or maintenance. So I’m aware this is a complex area and it’s not my question for today. My issue is that

I couldn’t rent out the unit for about six months while the remediation was being completed. I am concerned that the IRD will say that the unit was not available for rent during that time and that, as a result,

I should not have claimed my interest payments as a deductible expense during that time. Can I have your view on this please?

A

Sorry to hear you are dealing with this: it’s very difficult. I believe there is a subtle but important difference between the property being rendered un-rentable as opposed to it being unavailable for rent.

A property that is made unavailable is one where the taxpayer has opted not to seek income from it. For example: if they have decided to let a family member live in it rent-free.

In your circumstances, I am sure you would have loved to have rented it but the remediation rendered this impossible. I believe in your circumstances the property is still available for rent but simply can’t be rented. I believe this should enable the revenue account holding costs to remain deductible during the remediation period where the property will be re-rented as soon as it physically can be. - Mark Withers

‘It’s important for any living arrangement where you pay rent that you are clear about what type of arrangement it is and that you have the agreement in writing whether sub-letting or flat-sharing’

Unwitting Illegal Sub-Let

Q

I have been renting and living in a unit for over two months now. But I just found out that it has been illegally sub-let to me and I’ve been given two weeks’ notice. What are my rights? I was lied to about this and I wouldn’t have used my holiday pay to shift into the unit if I had known that the tenancy was illegal.

A

From the information you have provided it is not clear whether you are sharing the unit with the person you rented from or whether they have moved out and you rented the whole unit. For the purpose of this response we have assumed you have rented the whole unit.

In order for a sub-letting situation to be lawful, the landlord must first agree in writing with the tenant listed on the tenancy agreement that they can sub-let the premises. If the tenancy agreement does not allow sub-letting, or consent has not been obtained, and the tenant has proceeded to sublet the unit anyway this is an unlawful act. Where the landlord lawfully terminates the tenancy, it will also terminate any sub-tenancy that was in place that was not consented to by the landlord on the same date.

When a tenant sublets a premises, they become a sub landlord, which also means they must meet their responsibilities as a sub-landlord under the Residential Tenancies Act. This includes ensuring there is no legal impediment to the premises being occupied by a sub-tenant. If they have breached this obligation you may be able to apply to the Tenancy Tribunal for compensation.

It’s important for any living arrangement where you pay rent that you are clear about what type of arrangement it is and that you have the agreement in writing, whether sub-letting or flat sharing.

For more information on tenancy agreements and agreements with flatmates see: www.tenancy.govt.nz/ starting-a-tenancy/tenancy-agreements/. Please note that this response applies under normal circumstances. Under the current Covid-19 emergency provisions, you must continue to comply with the guidelines during this period.

This includes recent changes in tenancy legislation, such as the freeze on rent increases and protections against tenancy terminations. - Jennifer Sykes

Apartment Strategy Risks

Q

I’m interested in getting a start on the property ladder. I was thinking about investing in an Auckland CBD apartment and putting it on Airbnb. But it seems that the Covid-19 crisis has dealt a blow to that strategy.

Do you think that is the case? Or do you think that it could be worth pursuing it a bit further down the track?

A

I’d be careful of this strategy at the moment as we currently have no idea on timeframes for when the borders will open up again. I do expect to see some good buying opportunities come up in the apartment market going forward. But in the short term in this segment of the market, I believe we may see both prices and rents pull back a bit. So you will need to be careful in how you approach it. - Kris Pedersen