A recent Australian court case serves as a warning for very small businesses. The NZ rules are similar.

The taxpayer bought a former fauna park intending to convert it to educational and accommodation use. However the taxpayer didn’t get around to kick starting their new business. They incurred expenses of owning the property and claim GST on those expenses on the basis they were for its business. The only income they had was described by the court as “miniscule” (about 6k) and related to hiring the facility out for a birthday party.

The court decided the level of commercial activity was insufficient to conclude the taxpayer’s expenses related to a business. They were therefore denied the GST credits they claimed on their ongoing costs of the property.

New Zealand has rules requiring sufficient activity to be carried on before GST credits can be claimed on expenses. There are specific rules excluding activities which are really “hobbies”.

Anyone holding significant real estate interests who generates very little income from their property needs to be very careful if they are claiming GST on their holding costs.


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