GST Registration for finance

[apapworth]

My broker tells me in order to get finance to fund our next IP, I will need to register for GST as my declared income will be greater than $74K, however our accountant suggests we do not register for GST on the ABN under my own name which I have had for more than 2 years.

I feel caught between the two.

My main concern is that a couple of years ago we subdivided a property (in my name) and built 3 units, but the plan was to never sell...

So my question really is, if I dont plan to sell the units, what are the consequences of registering for GST in my own name on my personal ABN, or are there also other problems with registering for GST under my peronsal name/ABN?

 

[JoyBoy]

What do you mean by declared income? You are required to register for GST if your current or future turnover is above $75,000. This calculation does not include rent (rent is an input taxed supply) or employment income.

I personally don't see any issues with registering for GST under your personal name. If anything, it will mean that you can claim input tax credits in relation to your properties for creditable acquisitions (for supplies you make which are not input taxed).

 

[Mry]

My main concern is that a couple of years ago we subdivided a property (in my name) and built 3 units, but the plan was to never sell...

So my question really is, if I dont plan to sell the units, what are the consequences of registering for GST in my own name on my personal ABN, or are there also other problems with registering for GST under my peronsal name/ABN?

The only problem is if you do sell the units within 5 years (I think it was 5? My books are at work!), you will be required to sell the units with GST included in the sale price. You can avoid the GST if you can argue that the units are a capital sale and thus do not come under the GST registration threshold, but once you are registered....

Also if you do make any sales as a business, you will have to include GST in the sale price. While you can claim back input tax credits, if you are trading profitably the tax office will always be getting money off you.

I do feel a bit uncomfortable about what your broker is suggesting to you. First of all you want to declare business income above what you are trading at and you indicate that you are not trading at that level. I like getting finance for investments as much as the next guy, but I don't like telling stories to get it.

 

[Peter_Tersteeg]

GST registration is required if you're earning a self employed income over $75,000. If you're applying for a lo doc loan and declaring an income over $75,000 then the lender will assume you're GST registered. When they do their ABN search, if they don't find the GST registration their only avenue is to reject the application.

There are some income types which do not require GST registration, but you will have to justify these.

 

[Ray Brown]

If you're applying for a lo doc loan and declaring an income over $75,000 then the lender will assume you're GST registered.

Can you have an ABN without registering for GST?

What about no doc loans?

 

[apapworth]

The only problem is if you do sell the units within 5 years (I think it was 5? My books are at work!), you will be required to sell the units with GST included in the sale price. You can avoid the GST if you can argue that the units are a capital sale and thus do not come under the GST registration threshold, but once you are registered....

I dont plan on selling within 5 years so this should be fine then.

Also if you do make any sales as a business, you will have to include GST in the sale price. While you can claim back input tax credits, if you are trading profitably the tax office will always be getting money off you.

As an employee, I dont really make sales, although I have sold other property owned in my own name last tax year.

I do feel a bit uncomfortable about what your broker is suggesting to you. First of all you want to declare business income above what you are trading at and you indicate that you are not trading at that level. I like getting finance for investments as much as the next guy, but I don't like telling stories to get it.

I should clarify that he is not suggesting I claim more than I earn, but much of my income such as rent, wages, and investment property sales takes me beyond $75k and into GST registration territory, although according to what I understand the ATO doesn't require me to register...

Unfortunately, its just that if you want to go low doc, you have to be 'self employed'....

 

[Mry]

Wages, rent and investment property sales do not enter into the 75k threshold. My goodness, your finance broker told you to get GST registered because of that? Is the financier so clueless that they cannot comprehend that those types of income don't come into the GST equation?

I don't understand your situation since obviously you haven't indicated a lot to us, but from what I can read, your finance broker is asking you to do some silly things.

 

[Kristine..]

My goodness, your finance broker told you to get GST registered because of that? Is the financier so clueless that they cannot comprehend that those types of income don't come into the GST equation?
QUOTE]

Hello Mry

Why on earth do you think it is the clueless mortgage broker who is suggesting that apapworth be registered for GST?

This is because the clueless mortgage broker is advising his/her customer of a recent change to requirements by one of the mortgage insurers.

Most of the lenders and insurers require 'proof' of two years self employment or business activities when an applicant is self certifying their stated income. No other proof is required, so when an applicant says 'I have been self employed for more than two years as evidenced by my current registration of an ABN which is more than two years old, and I earn $X per annum' the statement is taken as truthful.

However, there has been a recent change for that 'proof' to include registration for GST when the stated income is more than the Government threshold for registration ie $75,000.

Moreover, at least one lender is requiring that, at time of application, the GST registration is at least three months old.

Better a clueless mortgage broker who is able to advise the customer of current requirements than a clueless mortgage broker who does not mention this to the applicant, who then faces rejection of their application based on non-compliance.

The alternate course of action, and one which many applicants choose to take, is the simple self certified 'I have had the terms and conditions of the loan explained to me and I can afford it' statement, however the 'no stated income' applications are limited to 70%LVR or, as with most of the banks, 60%.

For many applicants this low level lend is not an option.

Anyway, it is no good complaining - better to be registered than not. I have come across a number of applicants who have had GST registration on and off over the years, depending on what they are doing at the time. It really is neither here nor there. Many people registered for GST from the beginning, as otherwise you are flagging to your own customer that your business does not earn the threshold trading income, which at $50,000 and now $75,000 would rather put your business activities at 'cottage industry' level.

Probably even the clueless mortgage broker is registered for GST!

Cheers

Kristine

 

[apapworth]

My goodness, your finance broker told you to get GST registered because of that? Is the financier so clueless that they cannot comprehend that those types of income don't come into the GST equation?
QUOTE]

Hello Mry

Why on earth do you think it is the clueless mortgage broker who is suggesting that apapworth be registered for GST?

This is because the clueless mortgage broker is advising his/her customer of a recent change to requirements by one of the mortgage insurers.

Most of the lenders and insurers require 'proof' of two years self employment or business activities when an applicant is self certifying their stated income. No other proof is required, so when an applicant says 'I have been self employed for more than two years as evidenced by my current registration of an ABN which is more than two years old, and I earn $X per annum' the statement is taken as truthful.

However, there has been a recent change for that 'proof' to include registration for GST when the stated income is more than the Government threshold for registration ie $75,000.

Moreover, at least one lender is requiring that, at time of application, the GST registration is at least three months old.

Better a clueless mortgage broker who is able to advise the customer of current requirements than a clueless mortgage broker who does not mention this to the applicant, who then faces rejection of their application based on non-compliance.

The alternate course of action, and one which many applicants choose to take, is the simple self certified 'I have had the terms and conditions of the loan explained to me and I can afford it' statement, however the 'no stated income' applications are limited to 70%LVR or, as with most of the banks, 60%.

For many applicants this low level lend is not an option.

Anyway, it is no good complaining - better to be registered than not. I have come across a number of applicants who have had GST registration on and off over the years, depending on what they are doing at the time. It really is neither here nor there. Many people registered for GST from the beginning, as otherwise you are flagging to your own customer that your business does not earn the threshold trading income, which at $50,000 and now $75,000 would rather put your business activities at 'cottage industry' level.

Probably even the clueless mortgage broker is registered for GST!

Cheers

Kristine

Thanks Kristine, this 'recent change' explains a lot! Looks like I need to register for GST then...

 

[Peter_Tersteeg]

Can you have an ABN without registering for GST?

What about no doc loans?

You don't need to register for GST to have an ABN until you earn more than $75k.

Some no doc loans will require an ABN for 1 day, some won't. GST registration is not a requirement for no doc loans.

 

[Mry]

Why on earth do you think it is the clueless mortgage broker who is suggesting that apapworth be registered for GST?

I didn't say it was the mortgage broker who was clueless, I referred to the financier, the one behind the mortgage broker, who was making the mortgage broker do silly things.

Look at the type of income being reported here -

much of my income such as rent, wages, and investment property sales takes me beyond $75k

This is one strange loan application. I am sure the mortgage broker is declaring all the assets for collateral, so the financier would have to be aware that rental income is being received and somehow take that into account. Furthermore, apapworth is declaring his/her income from an additional $75k+ in 'self employed business income' (made up of wages and investment income) by being GST registered (which cannot include the rental property income that 'requires' apapworth to register as it is specifically exempted from GST, and from being counted towards the threshold). If I was a bank doing my due diligence on a loan application like this, having rental property, no separate reports of rental income and a declaration of self employer income of $75k+ that required GST registration, I would think that a mistake had been made on the application requiring further checking or I would be adding back rental income on top of the $75k.

So we have one source of income (rental) being either completely ignored, or classified incorrectly in a way that could overstate income. And from what I read, apapworth has between none and almost no business income at all.

It would be more correct to have apapworth sign a document reporting the types of income he/she receives rather than call it all GST inclusive business income, and if apapworth declares 75k+ in business income, then GST registration would be required. By having the financier force people to register for GST, they create problems for the loan applicant and possibly force them to make false statements when the income comes from passive investments. I hope he/she doesn't have to sell those properties.

I'm sure most people would rather get the money than bother with all this stuff and I am making some assumptions here, so this is just food for thought for now. I'm not bagging anyone, I just want to make sure that no one gets into trouble.

 

[Peter_Tersteeg]

Rental income is usually declared separately from business/personal income. Lenders also treat it differently. If your MB isn't doing this, he's either incompetant, or trying to hide something - in which case he doing a lousy job.

 

[apapworth]

What do you mean by declared income? You are required to register for GST if your current or future turnover is above $75,000. This calculation does not include rent (rent is an input taxed supply) or employment income.

I personally don't see any issues with registering for GST under your personal name. If anything, it will mean that you can claim input tax credits in relation to your properties for creditable acquisitions (for supplies you make which are not input taxed).

I have just re-read your post and just want to clarify what you mean... are you saying that you can therefore theorectically say:
$74k Self Employed Income
$50k Salary
$20k Rent
and and therefore you would not be required to register for GST?

 

[JoyBoy]

I have just re-read your post and just want to clarify what you mean... are you saying that you can therefore theorectically say:
$74k Self Employed Income
$50k Salary
$20k Rent
and and therefore you would not be required to register for GST?

That would be correct. The only income the ATO would consider in deciding whether you would be required to be registered for GST (in your situation) would be your self employed income (or business income).

Your salary is regarded as employment income and is specifically exempt in calculating your GST registration turnover threshold.

The rent that you receive is an input taxed supply and is also not included in your calculation of registration turnover.

I think you might be interested in reading the ATO publication 'GST for small business' which can be downloaded from http://www.ato.gov.au/content/downloads/N3014072007.pdf

Alternatively, you could always voluntarily register for GST even though you are not required to do so. This however, would mean that you would be required to lodge BAS statements on a quaterly basis.

 

[apapworth]

That would be correct. The only income the ATO would consider in deciding whether you would be required to be registered for GST (in your situation) would be your self employed income (or business income).

Your salary is regarded as employment income and is specifically exempt in calculating your GST registration turnover threshold.

The rent that you receive is an input taxed supply and is also not included in your calculation of registration turnover.

I think you might be interested in reading the ATO publication 'GST for small business' which can be downloaded from http://www.ato.gov.au/content/downloads/N3014072007.pdf

Alternatively, you could always voluntarily register for GST even though you are not required to do so. This however, would mean that you would be required to lodge BAS statements on a quaterly basis.

This makes much more sense and wish it was explained to me earlier... I wonder if putting Salary, Self Employed income and Rental Income (as I have all 3) on a loan application would help, or whether I should just stick to stating the self employed income and keep it under $75k....

Any brokers have an opinion on this?

 

[JoyBoy]

Why exactly is it that you are required to register for GST? Is it to show that you have income greater than $75k? Surely there must be other ways to do this, eg tax returns, Profit loss statements, payment summaries, sales....

 

[apapworth]

Why exactly is it that you are required to register for GST? Is it to show that you have income greater than $75k? Surely there must be other ways to do this, eg tax returns, Profit loss statements, payment summaries, sales....

From what I can gather, because of sub-prime etc, one of the mortgage insurers are now just doing a simple GST registration test on Low Doc Applications if a business claims more than $75k. This seems fair, I just thought this included any Salary and Rental income, which didn't seem fair.

 

[Kristine..]

I have just re-read your post and just want to clarify what you mean... are you saying that you can therefore theorectically say:
$74k Self Employed Income
$50k Salary
$20k Rent
and and therefore you would not be required to register for GST?

Equally, so would having a number of ABNs with the business income earned from each ABN being under the $75K threshold.

About two years ago, when the threshold was $50K, I had a customer who had (a) ABN about four years old, plus (b) an ABN about eighteen months old, and (c) an ABN about three months old.

The lender (a rather saintly one, if I recall) accepted that her self certified income was about $140K per annum and that she did not need to be registered for GST as each business earned less than $50K per annum.

The lady also had rental income of about $80K per annum, but this was not declared in her Self Certified statement as we included a complete property / mortgage / rental inventory with the Assets & Liabilities statement.

apapworth, give your broker some 'Imagination Pills' - there is (nearly) always a way to structure a deal that is compliant with lending guidelines and creates the least stress for the customer (you).

Cheers

Kristine

 

[asdf]

Is this PMI or Gemworth requiring this ABN cos I spoke to a MB recently and again this was the first question asked. Understand that in order to move forward with your acquisitions, one invariable has to go down low doc route and will encounter this problem but I suppose what most don't understand
(me included) are the long term implications with the ATO about being reg'd. From what I can gather, no issue if you buy only old property but a bit of an issue if you develop or buy land and build??

 

[JoyBoy]

The sale of new residential premises (whether it is a house or a unit) by a registered entity (for example, a builder or developer) in the course or furtherance of an enterprise it carries on, is a taxable supply.

http://law.ato.gov.au/atolaw/view.htm?locid='GST/GSTR20033/NAT/ATO'&PiT=99991231235958