GST on Commercial Property for personal use.

[Serley]

Hi
We have a family trust which up to now has just held a few shares and we are now planning to use it to buy a small factory/warehouse for personal usage - storing a car and other goods. We have to pay GST on the purchase and presumably collect it on eventual sale. Are we able to setoff the GST cost against the GST on sale and if so, what do we have to do to be positioned for this. eg I would have thought we would need to get an ABN but to do that it seems we have to be carrying out a business. Presumably the occasional buying and selling of shares wouldn't qualify?

 

[Paul@PFI]

This needs some advice.

GST will apply to acquisition but its not creditable to the trust. The Trust isnt conducting an 'enterprise" and making taxable supplies. It would be ignored and form part of the final cost base. The GST payable when trust sells can be reduced by the GST not previously claimed. So there is an example when a tax invoice isnt needed but will be !! This is in effect a "margin scheme" so that the net GST impact over long term is based on the change in value (and change i the GST rate!!) . This isnt the margin scheme commonly referred to on SS. I call it "the other margin scheme". This method applies often when a change in creditable use occurs for cars, property etc. The "lost" GST isnt lost as its a balancing adjustment on the way out. Record keeping needs to address this. Easy to forget.

Trust use of assets poses some concerns. Beneficiary use? If a company lends $ to the Trust there could be a deemed dividend issue there too. A question a tax adviser may want to explore is "where will trust get the $$ from".

Land tax. No automatic PPOR expemtion. Vic does have a friendlier Land Tax Act though for trusts.

I dont belive an ABN is needed as no enterprise or taxable supplies are being made. That said if its a scheme the ATO might see Trust as a party to a scheme and be of a different view.

 

[Serley]

Thanks Paul -very helpful.
There is a possibility of some future small business use of the asset by some family members (beneficaries) and I realise this needs advice. Funds would come from a personal contribution.

 

[jmillar]

From my understanding, you will pay GST on top of the price if it is currently vacant. If it is tenanted, GST will not be applicable.

If you pay GST, you may get it back but also remember that your stamp duty will be based on the GST INCLUSIVE price. So if you're paying $200,000 + GST then stamp duty is calculated off $220,000 (yes, a tax on a tax).

Do you have a company?? If so, and the property is vacant, your company can rent the unit starting 1st June and your trust can buy it with your company as the 'tenant' on the 2nd June. From what my solicitor has told me, it happens all the time and is completely legal.

Hope this helps!

 

[Terry_w]

Do you have a company?? If so, and the property is vacant, your company can rent the unit starting 1st June and your trust can buy it with your company as the 'tenant' on the 2nd June. From what my solicitor has told me, it happens all the time and is completely legal.

Hope this helps!

jm, I don't understand what you are saying here?

 

[pinkboy]

jm, I don't understand what you are saying here?

I think what jm is trying to say:

Buyer sets up company.
Vendor creates lease and leases to new company.
Buyer sets up 2nd company/trust entity and purchases the building as a 'going concern'.

Bit rough, but doesn't achieve any more or less than what Paul describes above either way. Plus there will be several sets of entities to then audit/pay for.

Jm, might want to hold off on 3rd party advice until you grasp it yourself. However, all advice like this needs to be told direct from the OP advisors and should not just take advice as gospel from the forum. I read Paul and Terry advices all the time, and hold a certain amount of trust with their advice, but still have to apply any of it from my own direct advisors.

pinkboy

 

[Rob G.]

jm, I don't understand what you are saying here?

Possibly a scheme to avoid GST, and to which Div 165 may apply.

Possibly a scheme to avoid stamp duty, and to which the relevant state duty laws may apply.

A GST increasing adjustment for any future input taxed or private use.

I think that is what is being suggested because otherwise it does not make sense in the light of the original posted intention.

 

[jmillar]

I think what jm is trying to say:

Buyer sets up company.
Vendor creates lease and leases to new company.
Buyer sets up 2nd company/trust entity and purchases the building as a 'going concern'.

Bit rough, but doesn't achieve any more or less than what Paul describes above either way. Plus there will be several sets of entities to then audit/pay for.

Jm, might want to hold off on 3rd party advice until you grasp it yourself. However, all advice like this needs to be told direct from the OP advisors and should not just take advice as gospel from the forum. I read Paul and Terry advices all the time, and hold a certain amount of trust with their advice, but still have to apply any of it from my own direct advisors.

pinkboy

Correct. And I understand there is then the issue of more entities to audit, which is why it may only be worthwhile if he/she already has a business.

Also, it seems that Paul is suggesting you won't be able to re claim the GST back, which means on a $500,000 property you will have to finance an extra $50,000 and will be 'out of pocket' until you sell. You will also pay SD on $550,000, not $500,000. Usually, financial institutions won't fund the GST component so this $50k often comes out of the purchaser's pocket until they claim it back.

This is why it is common for the purchaser to rent the property off the Seller, and then purchase it in another entity as a 'going concern', avoiding GST altogether. Of course, run this past your accountant. And the seller's conveyancer/accountant have to be happy with it as well. I've seen cases where sellers' conveyancers won't allow it because they have no understanding of 'going concern' and just say it can't be done.

I do see it done on a weekly basis though and is a very simple way of getting around paying GST and extra stamp duty on commercial property. As a result, also makes it easier to fund which leaves more capital for moving premises, running your business, investing in other property etc.

Hope this helps somewhat.