GST on Commercial Premises

Discussion in 'Accounting & Tax' started by PandDos, 5th Nov, 2020.

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  1. PandDos

    PandDos Active Member

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    Hi I'm hoping to get some insight on the GST requirements in commercial property.

    1) what determines if you need to charge GST on the Rent
    2) what determines if you need to put GST on the Sale Price.

    For some context I'm asking in relation to a property with a $400k-$500k valuation and a gross rental income of $30k pa.
     
  2. Mike A

    Mike A Well-Known Member

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  3. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    And what the value of taxable supplies may be. eg If under $75K is the entity required to be registered or is it voluntary. Often when buying this imposes the requirement if going concern is used. And while the vendors may choose to sell under GC this then requires the (unregistered) buyer to also register for GST. Or they may have to pay GST inclusive and cant claim any credit. Its a self policing area of GST law.

    MT 2006/2 also considers the ABN requirements from the persective of a residential property which is a exception. Hence needed for a commercial property owner !! And then also ead GSTD 2000/9 : https://www.ato.gov.au/law/view/document?docid=GSD/GSTD20009/NAT/ATO/00001&PiT=99991231235958

    Its rare to find commercial real estate that isnt a taxable supply when sold because of the enterprise test. And a mixed supply can also occur with a shop + residence.
     
  4. PandDos

    PandDos Active Member

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    Are you saying that if the rent is less than 75k no GST is applicable, unless you voluntarily want to charge it?
    And what does going concern mean?

    That link you sent Is very long, detailed, and technical. i was also having trouble understanding it.
     
  5. Scott No Mates

    Scott No Mates Well-Known Member

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    You can't charge gst unless you are registered.
     
  6. PandDos

    PandDos Active Member

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    yer i get that. But what determine if you need to register for GST and then charge it to your tenant.
     
  7. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    You can be liable for tax and penalties by being unregistered :) And so can the buyer !!
     
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  8. Curious2019

    Curious2019 Well-Known Member

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    If you are buying a commercial property, there will most likely be GST on the sales price, ie $400,000 + $40,000 GST. If you want to be able to claim the $40,000 GST back as a credit from the ATO, you will need to be registered for GST and purchase the property as a going concern. Then as you are registered you will need to charge your tenants GST.

    the other option is to buy the property, not register, add the $40,000 to the cost base and not charge your tenants GST. There may be a point in the future though where you are required to register (rent is above $75k pa) and then you have missed out on the credit of $40,000.

    Is there something about registering for GST that concerns you? You will need to lodge quarterly BAS’s but they are usually pretty simple if just one tenant in one Property...
     
  9. balwoges

    balwoges Well-Known Member

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    I had to register for GST when income from my commercial tenants reached $75,000 per annum which was passed on to the tenants i.e. 10% of their rent was added on to their rent which was passed on to the ATO every 3 months.
     
  10. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    If your are buying its possible GST is specified by the vendor. Lenders wont lend the GST.

    A smart landlord would never add GST. Instead GST is included. If that doesnt make sense then seek tax advice
     
  11. coins

    coins Well-Known Member

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    Are you sure about that? Isn't the property purchased GST-free if it's a going concern?

    Selling commercial premises

    GST and commercial property

     
  12. Curious2019

    Curious2019 Well-Known Member

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  13. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    As the commercial property is likely being used by a entity registsred for GST the extra GST isnt a actual cost and the occupant likley can claim the input tax credit. The "net" cost for rental expenses are unchanged.
     
  14. balwoges

    balwoges Well-Known Member

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    Yes, but some people new to commercial property don't understand how it works, I hope I have simplified the process ... :D
     
  15. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Yes it can be confusing when acquiring, renting as occupier, as owner and when selling.

    We see many issues and errors with commercial property which are typically detected well after they should have been addressed:
    - Going concern assumptions which are false (GC assists a registsred buyer and seller simplify the sale process by disregarding the GST element of the price);
    - Owners who pay GST or use the going concern who then want to cancel GST registration. This can trigger a clawback of the GST !
    - Unregistered sellers (The buyer may be liable !!)
    - Incorrect ABNs eg Fred and Mary are joint owners but the ABN is not for a partnership
    - GST not correctly added to reimbursed outgoings like rates and water.
    - Misunderstanding of the $75K turover test and its application
    - Tax invoice requirements
    - Good and bad real estate agent reporting

    One of the bigger problems can be failing to seek tax advice PRIOR to buying. Its not unuusal to find X is buying from Y and they agree on a price. Then GST is added. A late flurry of advice determines that since X used the premises and had no lease that going concern doesnt apply. So now Y must find a further 10% which lenders wont temporarily fund. Then contract terms for vendor finance of the GST element are required. Best to get legal / tax advice early. ie before signing.
     
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  16. coins

    coins Well-Known Member

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    A bit confused about the above. If a buyer is buying a property which is sold as a going concern, GST is disregarded. Does the buyer still need to be GST registered in this case for that to happen or the buyer doesn't have to be GST registered & it automatically happens because as it's sold as a going concern?
     
  17. Scott No Mates

    Scott No Mates Well-Known Member

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    All parties need to be registered for gst to meet the going concern condition.
     
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  18. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Yes. Key conditions to GC are:
    1. Both vendor and buyer are reg for GST
    2. The contract arees to GC and
    3. ALL of the supplies are eligible,. Eg Fred the farmer sell using GC but he sells only his land used for crops. He keeps part of the land for sheep. Not eligible.

    Gc is a short cut which basically allows two parties who would otherwise pay / claim GST to avoid delays and complications and finance issues. But it is NOT automatic.