Help! GST on a mixed use property

Hi all,
I'm hoping someone on here can advise......

I'm just new here today. Previous forums I was using have closed and I found PropertyChat just now.

I'm an investor in residential properties but I have one unusual property which I am about to sell and have come up to a stumbling block in having the contract prepared. The building is about 100 years old and was built before any houses around it. It's like an old general store with residence at the rear and a small shopfront under the main roof. (Duplexed, so there are actually 2 shops and 2 residences).
The council zoning is residential but with existing use rights for the shop to still operate in a residential area. Over the years it's been difficult to rent the small shops so it's spent much time vacant.
The insurer inspected the building when I purchased it and determined that they would call it residential for the purpose of insurance given its proportion of shop to residence (approx 1/4 shop, 3/4 residence).
Valuer general refers to the property as residential land on the valuation certificate.

In preparing the contract the conveyancer has said...

So far as the property appears to be used partially for residential and partially for commercial purposes I advise you to seek specific advice from your accountant in relation to issues of “mixed supply” and the application of Goods and Services Tax Ruling 2001/8. Your accountant should be advised of the following:
1 that you propose to enter into a Contract for Sale which such contract necessitates advice as to the treatment of GST for the purposes of sale; and

2 that the property is used partially for commercial purposes and partially for residential purposes.

I thought that I could perhaps sell with vacant possession, but the conveyancer further advised....

The land is partially residential and partially commercial by virtue of existing use rights. It is not correct therefore that the land is residential solely and indeed the commercial lease in relation to the shop irrefutably gives rise to the issue of GST.

If you are selling with vacant possession then how do you propose the contract deal with the issue of GST?

Any advice would be appreciated as I'm pretty unsure about this sort of matter.
Thanks to anyone who may be able to advise.

 

@HappyTrader
Existing use rights may have lapsed depending upon when they were last occupied.

Do the shops lend themselves to conversion to studios? ie kitchenette, laundry closet and bathrooms? A few like that in Summer Hill.

 

Thanks for replying scott. My understanding is that existing use rights lapse if they are vacant for an extended bit not if owner is actively attempting to find a tenant which I have always done. I guess they could be converted but would require firewalls etc. At this stage I just want to sell but not sure how to treat the GST responsibilities mentioned by the conveyancer.
Thanks again

 

Are you registered for gst? You can't charge gst if you're not registered

 

Premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises even if they are used for a purpose other than to provide residential accommodation (eg where the premises are used as a business office) (GSTR 2012/5).

So I would start to see if the shop is really a large dining room or something. In that case you are selling residential premises. If they are used residential premises then they are gst free.

 

Thanks ross,
The shops really couldn't be construed as anything else thanks. And the fact that there is a lease on one as a business purpose would be proof as the conveyancer mentioned. I'm not trying to get out of paying tax or anything similar- I'm just trying to find out what to place in the contract? Any ideas are very much appreciated. Thanks again

 

Have you looked into selling it as a going concern?

 

I would recommend tax legal advice so that the contract can be correctly prepared as issues about GST can be addressed. There are also ways to reduce the impact of GST but you must adopt them in the contract and may need to deal with apportioning and valuation etc

 

Thanks,
I'm happy to,sell it as a going concern. New buyer will be demolishing the building but I'm just not sure of how to advise my conveyancer.

 

Thanks Paul,
That's exactly what I'm looking for.... Just not sure how to answer my conveyancers question above.
I was hoping it was a simple question and perhaps I could get an answer on here as I currently don't have an accountant.
Thanks again for responding

 

I think the real work is done on the contract. So to sell it gst free the contract will need to be properly drafted. The standard REIWA contract has a decent going concern clause but for something big we would get the entire contract dtafted to deal with warranties and the like.

If you are instructing the settlement agent it is a bit late.

I would sell commercial as a going concern with the proper elections by both parties.

This needs further work but you have the kernel of an answer.

 

Spot on Ross.
This issue clearly demonstrates a area where an issue between a convenyancer v's a solicitor is demonstrated. Solicitor can give tax advice and incorporate it into a contract. The conveyancer recognises it but isnt allowed to advise.