Hi All, I have a question for any accountants or commercial property experts out there:) I, my partner and my mum and dad have just bought a factory unit (off the plan). We paid $346,500 including GST and plan to sell for at least $450,000 once the unit is built. None of us are currently registered for GST, however I'm not sure whether we should register for it or not? If we register I understand that we can then claim the $34,650 that we've paid in GST, though will then have to charge the new owner $45,000 in GST when we sell the property. Therefore if we receive that money, then in theory give it back to the ATO is it worth us registering for GST, or should we just sell the property at $450 without GST? Any advice would be much appreciated! I've spoken to an Accountant and the ATO and neither gave me any decent advice:( Regards
Wayne
If you register your net cost is $315000. If you sell for $450000 plus GSt you make $135000 profit. If you get the unit tenanted before you sell you should be able to sell it as a going concern and the Purchaser will not need to pay you the GST or pay stamp duty on the GST. If it were me I'd register. There may be arguments against but I cannot see why you wouldn't want to recover the GST you had paid. If the ATO considered you were carrying on an enterprise and you weren't registered and hadn't either charged GST on the sale or sold as a going concern, the ATO could recover the GST from you and what would have been a nice profit of $100K plus would be reduced to 60K.
I agree with CRJ
If you have the intention of buying off the plan and reselling at the time of completion then you are doing this as a profit making venture. The ATO will want their pound of flesh. Better to be register up front and keep the monkey off your back.
Regards
Don
hi guys,
thanks for the feedback.
CRJ – so your saying that if we have a tenant the buyer wouldn't have to pay the GST, and if we don't have a tentant they would have to pay it?
If we go down this path of finding a tenant first, do you think we would be narrowing our market to "investors only" rather than "owner occupiers"?
And in this case if we have to pay the GST wouldn't we be better off just not registering? Eg, as we are recieving the GST credit – then will be giving this back when we pay the GST on the buyer's behalf?
thanks again,
Wayne
you will need to talk to a good accountant about the 'going concern' requirements.
You're not understanding.
Sell vacant property $450 plus $45K GST, you pay $45K to the ato from the GST recievd and keep $450K your buyer gets $45K back from ATO if he is registered for GST. Net cost to buyer $450K
Sell tenanted property that qualifies as going concern Sale price $450K, you receive $450K. No GST changes hands provided your buyer is registered for GST. Net cost to buyer $450K
Your worst case scenario is you do not register and the ATO does an audit on you and says you owe us GST. You sold for $450K give us one-eleventh. As you weren't registered you can't claim the GST back from your purchaser. By the time they do the audit you've spent the money on something else and one or more of your co-owners can't pay their share, you're the bunny
GST isn't a tax on businesses. It is a tax on the ultimate consumers, but all businesses are involved in the collection process even if they only trade with businesses.
The real issue to you is why do you want to give the ATO the $31500 GST that you have to pay on your purchase when you can simply register and get it back. If you want to give away money recklessly like that I'll send you my bank account details and you can put the money in it.
You know your area so I presume you know who makes up the occupier mix for this kind of property – owner/occupiers or tenants. Yes you're right an owner/occupier will want a vacant property. On the other hand most investors want a tenanted property and the value of the property will be dependent on the terms of the lease particularly rent and length.
As an investor if I buy a vacant property the risk of finding a tenant is mine. It might be vacant one day or one year and I'm going to want that risk reflected in the purchase price.
Wayne
On all deals I am involved in I have it written in the contract that if the ATO deems that there is GST payable then the purchaser is liable to pay to me that sum of money. I'm registered for GST. I don't lose which ever way it goes.Geoff s
Geoff, you're registered for GST so that's fine. Wayne is not registered
In the standard NSW contract the Vendor has to state whether it is a GST free supply or whether it is among other things the sale of a going concern. The contract then says if the sale is of a going concern and the ATO serves a letter on the Vendor stating the Vendor has to pay GST on the supply the purchaser must pay the amount of GST. For a going concern both the purchaser and the Vendor need to be registered, then there are other matters to be satisfied.
My recollection is that it is illegal to claim GST when you are selling unless you are registered for GST. The real issue is that Wayne is not registered.
Wayne's real issue is will the ATO say he has to pay GST on the supply.
Hi Crj and Geoff,
Crj – thanks for the detailed reply – much appreciated!
Now I have a better understanding I'm just filling out the online ATO forms to apply for an ABN and register for GST:)
As there is myself, my partner and my parents involved I was told we should setup a family partnership then just get one ABN for the parthership rather than get individual ABNs – do you think this is the best way to go?
I must admit investing in commercial property seems a little more challenging though hopefully the rewards are better than residential!
cheers
Wayne
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