GST payable to ATO on Council & Water rates when reimbursed - Commercial Property

Council & Water rates are always GST free. When you own a commercial property your agent gets your tenant to reimburse you for these things. Since you are getting a reimbursement, are you meant to pay 10% of this amount as a GST to the ATO? This is what our accountant has said which makes no sense to me.

For example council & water rates total $1.1k. Your agent gets your tenant to reimburse you this $1.1k. Then apparently you are meant to give the ATO $100 as a GST since you got a reimbursement. Makes no sense to me. It means that we are losing $100 because the tenant isn't paying us an extra $100 to cover the GST which we have to pay the ATO as a GST. Can anyone clarify if this is correct? Thanks

 

If you make a sale from a gst registered entity you are required to charge gst (unless exempt)

Simply because you call it an on charge of rates does not change the fact that you are making a sale. So you will charge gst.

charge the tenant 1.100 plus gst. Otherwise your out of pocket. Not 1100 inc gst

 

So getting a reimbursement is considered a "sale". Since the agent didn't charge the tenant GST on top of council & water rates in the past, can they still charge the tenant for the past where the tenant didn't pay GST to make up for the shortfall? If not, do we have any legal claim against the agent for not doing this where the agent will have to pay this to us? Considering they should know this as the rent the tenant pays us is the rent amount plus 10% GST on top.

 

What happens with other expenses like insurance premium company, the fire protection company, repairs companies, etc. Say insurance charges us $550 (incl. of $50 GST). So we have to charge the tenant $550 plus another $55 GST on top? Same with any other things where we have already been charged GST on the invoice, we still add an extra GST on top for the tenant to pay us?

 

@thesuperman - you have a very poor understanding of how the gst is collected and how it works, get your accountant to fill you in.

Are you registered for gst? If not you cannot recoup gst on the expenses. You invoice the tenant the same amount as the services charges eg You pay council $1100, you claim $1100 from the tenant.

If the tenant pays the council/water rates directly, then you don't raise an invoice and there is no additional gst collected.

If you are registered, then for gst exempt services charges (eg rates & water) supplied to the property, paid by you and invoiced to the tenant - then gst is added to the invoice. You pay council $1100, you invoice tenant $1100+gst, tenant pays you $1100 & you remit $110 to ATO. You are no worse off.

Insurance etc with gst:
GST is not applied on all of the insurance invoice (not charged on the levies) so the invoice is probably around $540 including $40 gst. You invoice the tenant based on the gst exempt amount of $500 + $50 gst, you pay insurer $500 + $40 gst, you collect $500 + $50 gst & remit $10 to ATO.

Your invoices must take into account the gst already included in the original invoice sad you cannot charge gst on top of the gst. You only remit the difference in your BAS.

 

Ok thanks Scott, this makes it more clearer for me. Yes, we are registered for GST. We have just been giving the agent the water, council, insurance, fire inspection, etc. bills and the agent has been collecting the exact amount of that bill from the tenant. We never created a invoice for the tenant to pay any of these things. How would we rectify this? Create invoices for the past where GST wasn't charged to the tenant for council & water or just start from now on and disregard the past meaning since GST wasn't charged to them, we don't have to pay & report it on the BAS? Shouldn't this have been a thing that the property manager have picked up and told us about that we need to create invoices for the tenant and charged them GST on top?

 

You'd still have to report it in your BAS, declaring 1/11as gst collected. Your accountant should be able to advise.

Yes, depending upon the agent's software they either create the tax invoice on your behalf with your ABN or in their name and they collect it and forward to you.

 

So standard practice is that the landlord never has to create a tax invoice for the tenant, it's always the agent which does this for the landlord, correct? We will have to bring it up with the agent why they haven't done this and for them to fix their past mistakes.

 

Not sure how they are going to 'fix it' ie whether the tenant is going to pay you an invoice of 100% GST on $0 or if all previous invoices have to be credited (across various tax years, closed accounts, adjusted tax returns lodged etc) and new/amended invoices raised.

Are you using an experienced commercial property manager or just the local residential REA who wouldn't know what to do in these circumstances?

 

There is a specific tax ruling on this issue.

For outgoings that do include GST the landlord would claim the GST paid and invoice the tenant for the GST exclusive cost + GST making it the same as the sum they paid.

Where the landlord incurs a cost that does not include GST that is a lease outgoing (eg water, land tax) then the landlord must add a further 10% and the tenant pays this.

The reason ? The outgoing is not now "land tax" but is a element of rental income and that is subject to GST.

Can the tenant just be asked to pay the land tax instead ? No. The outgoing is a taxable supply between the tenant to the landlord even if paid directly. The landloard would remain liable for 4 years for unpaid GST. This issue can be detected in routine "reviews" of either the landlord or tenant GST position.

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What REALLY bugs me is receiving annual residential rent statements from some REAs that show GST applied and accounted for on things like repairs, agent fees etc. Its a sign of a REA that has no idea. Commercial REAs tend to be experienced in these things and provide quality reports for BAS prep.

 

It's basically a residential REA.

 

So the landlord can only remain liable to 4 years of unpaid GST, not any more than this period of time? I guess if this happens then the landlord lodges a claim against their agent for this negligence of not invoicing the tenant correctly.

 

That's your problem. You have to instruct the agent.

Depends on the instructions that you provided to the agent - "Can you get the tenant to reimburse for these costs?" is totally different from "Prepare a properly drafted tax invoice complying with GSTD 2000/10, I am registered for GST and this is my ACN/ABN".

With the latter instruction from my clients, I raise the tax invoice and remit the lot back to the owner when received.

 

Negligence may be difficult to demonstrate. I question what other commercial property issues they dont know. I would be considering a commercial REA.

 

Did you make it plain to the PM you were registered for GST on signing the lease?

 

Yes they know. They have always charged the tenant "plus 10% GST" on the rent for us for many years.

 

That's the best way for the tenant to think about this. The landlord is not a council, so they are not charging for council rates, but an element of rent, which is subject to GST.

 

How on earth did all this get past your accountant?... I am assuming he does your BAS.

 

No, we do the annual BAS ourselves. Accountant does the tax return and financials.