Purchasing a holiday home and claiming GST on the price may seem smart but selling it could result in a hefty GST bill on the full sale price. Fortunately, a limited-time concession under Section 91 of the GST Act offers a way out— but only if action is taken before 1 April 2025.

With the deadline fast approaching, GST-registered taxpayers should review their assets to determine if they can benefit from the transitional rule under section 91 of the Goods and Services Tax Act 1985 (GST Act). This rule provides a one-time opportunity to remove certain assets from the GST net, avoiding GST obligations upon sale.

The issue: GST on asset sales

Many taxpayers have previously registered for GST and claimed input tax on assets with mixed or uncertain use, such as holiday homes, lifestyle blocks, or home offices within private residences. Under standard GST rules, if GST has been claimed on an asset’s purchase or if it was acquired as a zero-rated supply, GST must be accounted for on the full sale price when the asset is sold. Given that property values often appreciate over time, this could result in a significant GST liability.

However, section 91 provides a temporary reprieve, allowing taxpayers to elect to repay past GST claims. This effectively removes the asset from the GST net and ensuring that any future sale is not a taxable supply.

Eligibility criteria for the section 91 election

To qualify for the transitional rule, an asset must meet all of the following conditions:

• The asset must have been acquired before 1 April 2023.
• It must not have been acquired for the principal purpose of making taxable supplies.
• It must never have been used for the principal purpose of making taxable supplies.
• GST input tax credits were previously claimed, or the asset was acquired as a zero-rated supply.

Common assets that may be eligible for this relief include:

• Home offices within family residences.
• Holiday homes used primarily for private purposes but occasionally rented out.
• Buildings used by businesses making both taxable and exempt supplies (e.g., residential rental properties held as part of a larger landholding).

What happens if you don’t elect?

If no election is made before 1 April 2025, any future sale of an asset that had GST claimed on purchase will remain within the GST net, requiring the seller to account for GST on the full sale price. This could result in a significant tax liability, particularly for assets that have appreciated in value.

Importantly, the transitional rule does not apply to GST claimed on ongoing operating costs (such as rates, utilities, and insurance), meaning taxpayers will still need to consider their broader GST obligations.

How to make the election

Taxpayers who wish to apply the transitional rule must notify the Commissioner of Inland Revenue before 31 March 2025. This can be done via a letter uploaded to myIR, detailing the election, the election date, and relevant asset information.

As the deadline nears with no extensions available, timely action can help prevent significant GST liabilities in the future.