How much of the purchase price does Vendor get if not gst registered?

[Mamaof3]

I think the fact that i've been looking and working on this deal for almost a week has given me a complete mental block with what appears to be a fairly straight forward question

We would like to purchase this commercial block, convert it to residential (zoned residential). Now the vendor is currently running a business on this site however, is not registered for gst. The RE Agent is a commercial RE agent and we've put in an offer of $813K including gst but when the agent knocked it back, he said that its essentially $740K excluding gst (which i get) which is too low.

Now how does that work exactly? So if we bought it for $813K, does that mean the vendor only gets $740K as he's not entitled to the gst portion of the sale? If this is the case then I can understand why he would think its too low. So my question is, does the vendor get the full $813K or $740K only (i.e. sale price minus gst)?

So confused

 

[HotRod]

The vendor gets the whole amount but the difference goes to the taxman via him.

I guess he's not registered for GST because he might be exempt (turnover less than $75K????).

With the sale, he will be, or need to be registered for GST.

It'll probably play out like this.

You'll claim the GST back in your BAS and the ATO will see an imbalance in their reporting system (if the other guy thinks he can get away not registering for GST and pocketing it) and be paid a visit by nice men in grey suits.

But I think in any event, if the seller does charge GST whether he is registered or not, he must remit it back to the ATO, by registering for GST.

Upshot is, the actual price you pay will be the $740K because you get the balance back from the ATO.

 

[Mamaof3]

Ok so he will essentially only get the ex-gst sale price....hmmmmm.

This is all going to be written up on a standard residential contract (as opposed to a commercial one)....does this make any difference at all?

 

[Terry_w]

I don't think the sale of capital items is included in the turn over calculations for GST purposes.

see http://www.ato.gov.au/businesses/PrintFriendly.aspx?ms=businesses&doc=/content/26491.htm

 

[Mamaof3]

Hi Terry,

That link appears to refer to a business who's registered for gst...does it change anything if the business isn't registered for gst?

I'm not the best at reading and interpreting ATO stuff

 

[HotRod]

It doesn't really matter from your PoV.

If it's going to be a GST free sale the offer will be $740K.

If it's going to be GST inc the offer will be $814K, but you'll get $74K back from Mr Taxman, still being a nett $740K, assuming your purchasing entity is registered for GST.

The vender is the one to be worried. In the second case, he'll be pocketing $814K, when it should only be $740K and sending $74K in to Mr Taxman.

It's going to be a bit obvious when you claim $74K back and no-one has paid it. That sort of money is a bit hard to miss.

 

[Ausprop]

the ATO won't release that sort of credit to you without a copy of the tax invoice and at that point an impasse is reached

 

[Mamaof3]

After about 40mins on hold....managed to speak to the ATO and was advised generally speaking, a business who's not registered for gst cannot charge nor claim gst except in the case of a commercial asset, the sale of it will be taxable.

So the vendor will have to pay the ATO portion to the ATO but we'll be able to claim the gst charged back from the ATO.

 

[HotRod]

After about 40mins on hold....managed to speak to the ATO and was advised generally speaking, a business who's not registered for gst cannot charge nor claim gst except in the case of a commercial asset, the sale of it will be taxable.

So the vendor will have to pay the ATO portion to the ATO but we'll be able to claim the gst charged back from the ATO.

Yup. Ask for a tax invoice on the sale.

Sounds like the seller might be in a bit of bother with the taxman though, trying to pull one over them.