The way you manage the GST obligations when investing in commercial property can save you hundreds of thousands of dollars or may cost you the same.
You need to get the right advice; GST is complex however you don’t want to miss out on valuable GST credit opportunities and/or neglect to pay GST if liability exists.
On a purchase of $1,100,000 for example $100,000 will either stay in your pocket as a seller or it must be handed over to the ATO.
The biggest mistake occurs when a vendor should be registered for GST however, they have not. If it is deemed that you should have been registered, then you will be liable and GST will be required to be paid.so if you were happy with your $1,000,000 sale price you won’t be so happy if you’re told to hand over $100k approx.
GST tax credits that purchasers may receive are not instantaneous and it may take weeks or months to receive that credit.
Sellers, buyers, and tenants that are subject to GST are enterprises that have a gross turnover in excess of $75,000.
So, if you are subject to GST ensure you allow for this in the purchase price.
GST free supply occurs when the vendor involved and the property involved in the sale is part of a GST free supply (supply of a going concern) this may be applicable if you fulfill a few basic requirements.
1. A business premises i.e., assets and operating structure are sold together with the property.
2. A partially tenanted property whereby part is for lease and or under refurb etc. plus existing leases and covenants are present.
3. A fully tenanted property that includes all existing leases covenants etc.
Some sales may be subject to the margin scheme whereby the liability is minimized however certain criteria must be met.
If you are registered for GST or required to be registered for GST, then you are liable for GST on the rent you charge tenants if you charge outgoings then you should also charge GST.
The information provided in this article is provided as general information and to be used for the same. For specific details and advice contact the ATO and or your accountant.
