GST & Unit Title Bodies Corporate (UTBC)
The IRD has recently published an interpretation statement (IS 23/08) to provide guidance on how GST applies to different transactions between a unit title body corporate, its members, and third-party suppliers.
A UTBC is a separate legal entity to its members. It can decide whether to register for GST. UTBCs are generally considered only making taxable supplies to their members in the form of members’ levies. The value of supplies made to the members is not counted towards the threshold of $60,000 for GST registration. However, unregistered UTBCs should monitor the value of other supplies to third parties as they may become liable for registration e.g., leasing car parks or providing advertising space on the common property.
Things to consider before registering for GST:
- If a UTBC decides to register for GST, it won’t be able to de-register until after 4 years.
- The compliance cost of filing the GST returns.
- A special rule requiring UTBCs to pay GST as a one-off adjustment based on the value of money and assets (not common property) it holds at the time of registration.
- Once registered for GST, UTBCs will need to return GST output tax on supplies to their members and third parties. They will generally be able to claim GST input tax on expenses paid to the third-party suppliers.
- UTBCs that incur a significant amount of remedial repairs for leaky building or seismic strengthening may consider registering to claim back GST on the costs. However, levies charged to members to recover these costs are also subject to GST.
- Registered members who use their units to carry on a taxable activity (e.g., running a café) will be able to claim GST on the levies if the UTBC is registered.
GST rules that apply to specific transactions:
1. Supplies from members
If a registered member provides services to a UTBC, the full value of the supply should be invoiced with GST. For example, an electrician living in the apartment complex agrees to fix some faulty lighting fixtures in the common areas. If both parties agree on offsetting the charge against the member levies, the GST input and output tax should be accounted for separately for GST purposes.
2. Supplies of manager’s accommodation
If a “live in” manager lives in the apartment provided by a UTBC as their main home or principal place of residence (whether it is owned by the UTBC or one that is leased from its member which is then used to provide to the manager), the transaction is generally exempt from GST.
3. Payments for ground rent
If the apartment complex is built on leasehold land, ground rent is payable to the landowner. Normally the supply of leasehold land is subject to GST. However, if the land is used for the “principal purpose of accommodation in a dwelling”, the supply is exempt from GST. That means if the development is an owner-occupied apartment complex where people live there as their main home, the ground rent is exempt from GST.
However, if some apartment units are being used by the members for commercial operations e.g., café on the ground floor, GST will apply to the ground rent for these units that are not used as dwellings.
The GST treatment on the levies collected to pay for ground rent should match with the GST treatment of ground rent.
4. GST on receipt of one-off payments
The main one-off payments that a UTBC would receive are court awards or out of court settlements, insurance payments and MBIE Leaky Homes Financial Assistance Package (FAP).
Generally, insurance and FAP payments are subject to GST.
The GST implication on court awards and out of court settlements depends on whether the payments are received as consideration for a supply and as part of the UTBC’s taxable activity.
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GST applicability in the case of bodies corporate is a complex field. The Accounting Hub specialise in property accounting and can help with this and other property tax matters. Please get in touch if you have questions.