GST and commercial properties

[eggnog]

OK, i'm trying to educate myself on investing in commercial properties and i've come across this GST component which is so left field when comming from a residential mindset.

i) To start off with, i've read that once you enter into commercial investing you must register for an ABN and GST. This is fine as if I do buy commercials I will be going through a trust. Does this mean that the trust will have to have an abn and gst registered.

ii) I also read that most expences paid (ex taxes, rates, etc) will have GST included and that I can claim back the GST bit. Is this correct.

iii) When buying properties i have found a lot of properties on RC.com that has a sale price + GST. Does this mean that I have to budget for 10% extra of the sale price. I suppose I would get this back from the ATO but it is a pretty high upfront cost.

iv) This leads me to my final question. How would my trust get back the GST. Would the ATO just write the trust a check. Or must it be offsett against income - kind of like negative gearing in that it will lower the taxable income. If the former then when would I get the check and if the latter then that kind of sux because I won't see it back until the trust starts making money.


I've got tones more Qs but will start off with these

 

[nonrecourse]

Some Answers

Hi there;

OK, i'm trying to educate myself on investing in commercial properties and i've come across this GST component which is so left field when comming from a residential mindset.

Answer; With residential property if it is a new building up to three years you also have to pay GST.

i) To start off with, i've read that once you enter into commercial investing you must register for an ABN and GST. This is fine as if I do buy commercials I will be going through a trust. Does this mean that the trust will have to have an abn and gst registered.

Close normaly it is the Trustee which is often a $2 company that registers for an ABN and the GST

ii) I also read that most expences paid (ex taxes, rates, etc) will have GST included and that I can claim back the GST bit. Is this correct.

With land tax and council rates being government charges no GST is applicable. With outgoings your tenant pays these plus GST and then claims it back from the ATO. If you are the tenant then yes you pay GST and provided your registered for GST you claim it back

iii) When buying properties i have found a lot of properties on RC.com that has a sale price + GST. Does this mean that I have to budget for 10% extra of the sale price. I suppose I would get this back from the ATO but it is a pretty high upfront cost.

That upfront cost is usually factored into your finance and provided you have enough equity in the property your purchasing or you are providing other security then its no big deal. The bank is happy to provide that extra 10% as they get it back with 6 weeks if you have your act together with the ATO.

iv) This leads me to my final question. How would my trust get back the GST. Would the ATO just write the trust a check. Or must it be offsett against income - kind of like negative gearing in that it will lower the taxable income. If the former then when would I get the check and if the latter then that kind of sux because I won't see it back until the trust starts making money.

The trustee is paid by direct deposit to the Trustees bank account. The turn around is usually 6 weeks if your paper work is in order


I've got tones more Qs but will start off with these

I'm happy to help

 

[eggnog]

cheers nonrecourse. Glad to hear that you get paid the GST back in cash no matter what.

Just a couple more questions that arose from your answers.

i) If I spend personal money on the property (ie, fitouts, maintenance, etc) to say attract tenants then can I claim GST back on these expences (ie, GST on materials, tradesmen, etc).

ii) With the financing of a purchase do the banks consider GST when calculating your borrowing capacity and loan LVR. for example, will they lend (70% of purchase price + 100% of GST) or only (70% of purchase price + GST combined)

 

[Glucose]

We're just in the middle of purchasing a commercial property, and NO the financiers will NOT lend for the GST. That is, the LVR is calculated on the value of the property BEFORE GST is added. You have to find the amount to cover the GST up front yourself.

 

[nonrecourse]

Further to your queries

cheers nonrecourse. Glad to hear that you get paid the GST back in cash no matter what.

Just a couple more questions that arose from your answers.


i) If I spend personal money on the property (ie, fitouts, maintenance, etc) to say attract tenants then can I claim GST back on these expences (ie, GST on materials, tradesmen, etc).

Answer; Your best approach is to have a rolling loan agreement with the trust that you contribute whatever funds and GST until you lock in a tenant. Then when your rental income starts flowing the trust pays you back and claims the appropriate deduction. Its better to keep your involvement at arms length for asset protection.

ii) With the financing of a purchase do the banks consider GST when calculating your borrowing capacity and loan LVR. for example, will they lend (70% of purchase price + 100% of GST) or only (40% of purchase price + GST combined)

Answer; With regards to the GST this is really a zero cost at the end of the equation. It would only be a junior bank officer who would include the GST in your LVR

 

[nonrecourse]

I'm surprised you say the financier would not fund the GST component. I borrowed 120% of the value of the last commercial property plus the GST. Having said that I also gave two other properties as security. If your dealing with the four big banks this has never been an issue with us. Some of the mortgage brokers yes they can be a pain.

 

[JoannaK]

of course, if there is a tenant in place and it's sold as a going concern then there is no gst payable or claimable on the purchase.

 

[APerry]

We're just in the middle of purchasing a commercial property, and NO the financiers will NOT lend for the GST. That is, the LVR is calculated on the value of the property BEFORE GST is added. You have to find the amount to cover the GST up front yourself.

Ask your lender for a GST overdraft, most banks offer this.

Regards
Alistair

 

[TheAnalyst]

We're just in the middle of purchasing a commercial property, and NO the financiers will NOT lend for the GST. That is, the LVR is calculated on the value of the property BEFORE GST is added. You have to find the amount to cover the GST up front yourself.

1. I do not belive the new residential need 3 years.
2. Why not ask your agent to write ONLY one price (you pay the full amount)? then you do not have to show the bank the GST part.

 

[buzzlightyear]

of course, if there is a tenant in place and it's sold as a going concern then there is no gst payable or claimable on the purchase.

The other advantage of purchaing as a going concern, is that stamp duty would be assessable on the GST inclusive price...

 

[buzzlightyear]

ii) With the financing of a purchase do the banks consider GST when calculating your borrowing capacity and loan LVR. for example, will they lend (70% of purchase price + 100% of GST) or only (70% of purchase price + GST combined)

Asked this before but not sure I still know to be honest. The answer seems to be, "it varies"....http://www.somersoft.com/forums/showthread.php?t=32655

 

[tropic]

If the property is purchased as vacant possesion, do I need to pay for GST and also stamp duty?
Is the stamp duty calculation the same as residentials?
I don't undestand why we pay GST on purchase and then we can claim it back?

 

[JoannaK]

If the property is purchased as vacant possesion, do I need to pay for GST and also stamp duty?

stamp duty is payable whether vacant or leased. GST is payable if vacant, but it MAY be possible to still purchase it as a going concern in certain circumstances. You'd need to speak with your accountant about this one as it can get tricky.

Is the stamp duty calculation the same as residentials?

I think the rates are the same no matter the type of property

I don't undestand why we pay GST on purchase and then we can claim it back?

you may not get the whole lot back. there may be income you've generated that could offset part of your return.

It's all about the cashflow for the government really

 

[tropic]

Thanks Joanna,

It sounds like something that I should leave to my accountant to decide if it's a going concern business.

 

[Ausprop]

on a recent purchase the ATO grilled me re the claim back. They want it all... copies of offers, settlement statements, loan statements, intentions, information re who does the BAS, spreadsheets, budgets etc. I got to know the officer there quite well over the course of a few days.

 

[JoannaK]

I've been in a similar situation to you Ausprop.

I settled on 3 properties at once, 2 were a going concern and the other was full GST paid on purchase and claimable by me on my BAS.

Because of the huge refund due back to me they decided to do an audit (which is reasonable and expected). They wanted a full copy of the contract, tax invoices, settlement statements blah blah blah.

THEN they did an ABN search on the ABN listed by the vendor on her invoice, and it was WRONG!! The ABN she had on her invoice had absolutely nothing to do with her at all.

The ATO threatened to withhold the refund of my GST (which I had borrowed as part of my facility and had to repay to the financier) unless I produced a new (correct and legitimate) invoice from the Vendor within 24 hours!

I got that new invoice thankfully (and subsequently my refund), but I started doing my own digging around, and came to the conclusion that the Vendor was never even going to disclose the GST she collected from me on the sale so I reported her to the ATO fraud department!

Lessons learnt?

1) Make sure you check the ABN yourself when you recieve the tax invoice from the vendor.

2) Make sure there is a clause in the contract that protects you from any additional GST liability that may occur as a result of an audit.

 

[JoannaK]

Thanks Joanna,

It sounds like something that I should leave to my accountant to decide if it's a going concern business.

Tropic,

this is something that is generally decided upon by the Vendor when they place the property on the market, but can be subject to negotiation between the parties.

But definately get your accountant's advice before doing anything.