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Tax Question

Discussion in 'Accounting & Tax' started by B-Mac, 13th Oct, 2015.

  1. B-Mac

    B-Mac Well-Known Member

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    Can a Pty Ltd company use a residential studio in the CBD as their commercial office (considering owners & body corp OK with it) and still be able to claim 100% of the rent as a tax deduction?

    The studio would be furnished completely as an office & rent would be paid by the company, from the company bank account, but to a residential PM...

    Is there any tax implications with doing this?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Shouldn't be as long as no one was living there.
     
  3. BennEznElle

    BennEznElle Well-Known Member

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    Terry, would you need to inform the property manager of the use of the property?

    Possible GST and insurance issues for the owner?
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You will have to read the lease and see the terms you will be agreeing to.
     
  5. Scott No Mates

    Scott No Mates Well-Known Member

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    Yes and you'd need a DA for the use. Much easier as a home occupation but not live there.
     
  6. Scott No Mates

    Scott No Mates Well-Known Member

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    N
    No GST issue if the rent is <$75k
     
  7. B-Mac

    B-Mac Well-Known Member

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    @Scott No Mates % @Terry_w thanks for your reply.

    If i look at it simply, the ATO should be satisfied that:

    1) I'm using the studio purely as a commercial suite (can provide them photos, they can come for a meeting if they are so inclined)
    2) Lease agreement states this is OK

    My thoughts are the onus is on the Studio Owner to get DA + BC approval (which i'm sure they have done), but wether they have, or haven't, shouldn't affect my ability to claim deductions as as a Tenant i've covered all my bases.

    I will definitely need to clarify with an Accountant before going down this path.

    From my point of view, residential studios offer far cheaper rent, better amenities & more choice/variety. Trick was finding one where the owner would agree is allowed to rent it for commercial use.
     
  8. Scott No Mates

    Scott No Mates Well-Known Member

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    It goes to the user/tenant to achieve the DA for the use that you intend to put the studio not the owner. That means you need to get Body Corporate to sign the DA as well as the owner. If you don't have the required approval from council then they're likely to close the premises.

    The Owner’s DA only relates to the use as a dwelling.

    You may have to consider shoptop housing which allows for your preferred use.
     
  9. BennEznElle

    BennEznElle Well-Known Member

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    True, I was more thinking of the situation where the owner was already registered for GST, i.e multiple commercial properties in the one trust.
     
  10. Scott No Mates

    Scott No Mates Well-Known Member

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    Generally you can't charge gst on a residential tenancy agreement. The amount charged will be based on a gst inclusive amount (which will be the same as if the lessor wasn't registered for gst and no different to what someone living in the studio would pay) ie 1/11 of the rent is gst.

    Unless you are issued with a tax invoice you cannot claim the gst.
     
  11. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    No GST issues as the premises are residential premises as far as owner is concerned. However if lease is signed by Mr X and used by Co X Pty Ltd then there could be a GST issue ONLY if its more than $75K pa.
    Fringe Benefits Tax ?
    Lack of deductibility if there is no clear and direct nexus to the company solely using the premises to derive income.
    Insurance issues
    Neighbour issues (Eviction anyone?)
    Council compliance (non-compliance with DA) issues
    Difficulties with a company entering into a resi lease. Expect questions by the agent.