When you’re buying a property there’s a sneaky little detail that’s been known to catch out even the best of us. You may never have noticed it before, but next time you bid at an auction, or sign a Sale and Purchase Agreement, pay close attention to the GST section because it could be the most expensive mistake of your life.
The words themselves are relatively small. You might not even notice them in the agreement or amongst the auctioneer’s spiel. However, somewhere amongst all that fluff, you’ll find the words ‘Plus GST (if any)’ or ‘Inclusive of GST (if any)’. Those words have a huge impact and I’ll share a real-life horror story with you now about a well-meaning Auckland Dad who got it wrong recently.
He ran into strife at an auction where he was kindly buying a converted villa for his daughters first home. The Villa was being used by the local Doctor as his medical practice room. The Auctioneer fired off the property details, at the usual rate of 732 words per second, and mentioned that the auction was ‘Plus GST if any’. Now Dad was a smart guy, but those words meant nothing to him and he was thrilled to win the auction with a bid of one million dollars. Everyone’s happy right! Not so. When it came time to pay for the property he got quite a shock because the price was no longer one million dollars flat. He was legally required to pay one million dollars plus GST which brought the price to a terrifying $1,150,000.
How did this happen? You’ll remember that Dad bought the property from a Doctor who was GST registered as a commercial Landlord, but his daughter was moving into the property to use it as her family home (not GST registered). From this, I hope you see that understanding the terms on the table is key to any deal and if in doubt ask your Lawyer or Chartered Accountant in relation to your specific situation. As a general rule of thumb:
- If you’re a buyer and want to safeguard yourself from GST being added to the price you’ll need to ensure the offer is ‘Inclusive of GST (if any)’ and cross out ‘Plus GST (if any)’
- On the flip side, if you’re a GST registered seller and you don’t want to find yourself out of pocket by 15%, you’ll need to ensure the terms are ‘Plus GST (if any)’
Clearly, these small details have a significant impact so familiarising yourself with exactly what’s on offer is crucial to ensuring neither party receives a nasty surprise.
