Purchase of mixed commercial/residential block

Hi all,

First time poster, long time lurker

I'm about to place an offer on a mixed commercial/residential "townhouse" in Sydney. The building is zoned "Business" and I have been told by the agent that I would be required to pay GST on 20% of the settlement price (which is the proportion of the building relating to commercial).

To provide some context, a large part of the ground level is commercial, with the 2 levels above being residential. The agent also told me that the loan on the building with the banks would most likely be commercial and not residential. She also told me the 20% GST is refundable when the quarterly BAS is filled.

Questions:
1. If the property is mainly residential, would the loan have to be commercial property? I made a quick call to CBA and they told me it would most likely be approved for a residential mortgage, subject to their valuation.

2. My brother and I are jointly purchasing the property. Could it be purchased in our names? If so, what are the GST implications and would I be able to receive a refund on the GST payable? Or does it need to be purchased under an ABN/Business Name/Company name?

Thanks
 
1. If the property is mainly residential, would the loan have to be commercial property? I made a quick call to CBA and they told me it would most likely be approved for a residential mortgage, subject to their valuation.

False. It will be commercial, the banker has no idea what they are talking about. Please get better advice from a broker.

2. My brother and I are jointly purchasing the property. Could it be purchased in our names? If so, what are the GST implications and would I be able to receive a refund on the GST payable? Or does it need to be purchased under an ABN/Business Name/Company name?

To get a GST refund the entity buying the property would have to be registered for GST. Most people aren't registered for GST in their personal names so yes you will need a company/trust with an ABN/GST registration to get that refund in your BAS.
 
I can't comment on the GST implications, but the finance it going to be tricky.

Whilst predominately residential, the commercial component may mean that it falls outside of the license of many residential lenders. If you then take it to a commercial lender, they'll say that it's mostly residential so they can't touch it because of similar license restrictions.

The CBA may be able to accommodate this but they wouldn't be my first choice. I'd stay away from mortgage insurance, that would likely kill the deal outright. I have done similar deals via some of the smaller lenders at 80%.

The last deal like this we saw had an unexpected surprise. The 'business' component was a fish and chip shop. Due to the nature of the business it was quite difficult to get insurance for the property and it added a significant ongoing cost to the deal. This sort of thing is worth considering and factoring into your figures before you commit.
 
False. It will be commercial, the banker has no idea what they are talking about. Please get better advice from a broker.

To get a GST refund the entity buying the property would have to be registered for GST. Most people aren't registered for GST in their personal names so yes you will need a company/trust with an ABN/GST registration to get that refund in your BAS.

I personally am registered for GST and have my own ABN. However, my brother hasn't got a sole-trader ABN. To split this quuestion out further:

1. On purchase, do we just purchase under our names and then sort out the financials under our ABNs with our accountants?
2. Would both purchasers be required to have an ABN to request for the refund? Can each individual be a sole-trader with separate ABNs or would a partnership be required? (I'm assuming the GST is split 50/50 based on ownership)
3. If my brother needs to apply for an ABN, does it have to be done before settlement and could he apply after settlement and still get the refund?

Thanks for the responses so far
 
Slix these are accounting/tax questions which I am not qualified to answer. You need specialised advice. I would just say that with the contract you need to have your entity's name on it from the start otherwise you may incur double stamp duty.
 
Hi all,...

Questions:
1. ....

2. My brother and I are jointly purchasing the property. Could it be purchased in our names? If so, what are the GST implications and would I be able to receive a refund on the GST payable? Or does it need to be purchased under an ABN/Business Name/Company name?

Thanks

Buying in personal names may mean you are liable for 100% of debt if bro fails to pay his share and vice versa. Joint tenants or tenants in common ?? Do you understand the concern if its joint tenancy ? Dont sign anything until you get advice on structure ! Whatever you do will be permananent and as Aaron says duty triggers can be nasty. Setting up correctly can be done quickly and the worries will be avoided.

The "partnership" enterprise requires an ABN not the individuals (ATO might refuse the refund) and to be registered for GST prior to acquisition for the commercial acquisition to be creditable (ie the GST is refunded).

A company !!! Why would a company acquire a property ? (There can be reasons but its unusual) ....This could be a serious concern and result in some nasty CGT outcomes and mean NEITHER brother receives any profit. Certainly no CGT discount. Perhaps you are thinking if its NSW property perhaps a NSW land tax unit trust with units issued to each owner to give fixed proportions of beneficial ownership + access to land tax threshold. Company as trustee for the trust.

Typically lenders wont fund the GST. That means between settlement and the ATO vetting the BAS refund it needs to be funded from personal sources. If you have good credit a lender may fund it but its not normal. You can expect a BAS that requires a large GST refund to be manually processed. ATO will ask for Tax Invoice and contract details especially that supports view of 20% = commercial. Does the other 80% have resi tenancy leases ?

A good broker will guide right type of loan and find the right lender and least cost.
 
Buying in personal names may mean you are liable for 100% of debt if bro fails to pay his share and vice versa. Joint tenants or tenants in common ?? Do you understand the concern if its joint tenancy ? Dont sign anything until you get advice on structure ! Whatever you do will be permananent and as Aaron says duty triggers can be nasty. Setting up correctly can be done quickly and the worries will be avoided.

The "partnership" enterprise requires an ABN not the individuals (ATO might refuse the refund) and to be registered for GST prior to acquisition for the commercial acquisition to be creditable (ie the GST is refunded).

A company !!! Why would a company acquire a property ? (There can be reasons but its unusual) ....This could be a serious concern and result in some nasty CGT outcomes and mean NEITHER brother receives any profit. Certainly no CGT discount. Perhaps you are thinking if its NSW property perhaps a NSW land tax unit trust with units issued to each owner to give fixed proportions of beneficial ownership + access to land tax threshold. Company as trustee for the trust.

Typically lenders wont fund the GST. That means between settlement and the ATO vetting the BAS refund it needs to be funded from personal sources. If you have good credit a lender may fund it but its not normal. You can expect a BAS that requires a large GST refund to be manually processed. ATO will ask for Tax Invoice and contract details especially that supports view of 20% = commercial. Does the other 80% have resi tenancy leases ?

A good broker will guide right type of loan and find the right lender and least cost.

Many thanks for your input Paul

The property will be for investment purposes and we still haven't worked out the structure of tenancy. I've found listings of leases where the directly neighbouring property has rented out the residential component separate to the commercial (to separate tenants). I have also spoken to a real estate agent who had previously listed this property for rent and he said it was listed as a whole (for the whole building) with the rent price + GST + outgoings.

I'm baffled. If the vendor is stating GST is only payable on 20% of the property (I could see how he arrived at that number using building size ratios), then why is GST charged on the full rent of the building when leased to a single tenant rather than applying the 20% rule?

What do you mean by the ATO refusing the refund on a partnership? On a separate note, is not possible to have 2 sole traders purchasing the property jointly with both having separate ABNs and GST registrations?

Regards
 
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Many thanks for your input Paul

I'm baffled. If the vendor is stating GST is only payable on 20% of the property (I could see how he arrived at that number using building size ratios), then why is GST charged on the full rent of the building when leased to a single tenant rather than applying the 20% rule?

What do you mean by the ATO refusing the refund on a partnership? On a separate note, is not possible to have 2 sole traders purchasing the property jointly with both having separate ABNs and GST registrations?

Regards

I will deal with the issues in reverse order.

No you cant have two individuals each with an ABN. GST etc. Wrong.

GST registration is required of an "enterprise" where turnover exceeds the $75K threshold. Alternatively the enterprise can register voluntarily ie where it acquires a costly asset etc even if t/over is under $75K. Thats normal. But it cant regsister to get the refund then cancel. Special rules apply. The enterprise is not two individuals each with an ABN. It is a "partnership", or trust etc...If its two individuals its a partnership. Problem with that is its not a legal entity but a "tax law partnership"....Its not a good idea. You cant just shortcut the process and ignore a seperate entity. If it were a partnership it will have a TFN and prepare its own (partnership) tax return. The p/ship income is shared to the two individuals. An ABN is issued to the "partnership". Each partner doesnt need or want an ABN. Your ABN is as an architect NOT as a property owner. Dont mix the two. If you wanted to be a property developer you may need a seperate ABN branch for that activity. This indicates you need tax advice to avoid mistakes. An ABN isnt a catch all...It relates to an enterprise not the identity of who performs the supply. An ABN is also tied to an entity but an entity can have more than one ABN. (usually branches) . GST is a simple complex tax.

The ATO might refuse refund if there is no ABN for the enterprise. No ABN no BAS, no refund. You cant attribute a share to each owner. Its like me asking a mate to farm the tax credits cause I dont have an ABN. The tax invoice may be defective too. ATO love to say no if paperwork doesnt comply. Thats why they focus on large $ refunds. Also without a "partnership" ABN how will you issue a tax invoice ? You cant put two ABNs on it. Thats a red flag.

I wondered if the 20% relates to a proportion of the commercial v's resi. Yes - Makes sense if its based on area. You may misunderstand my comment re GST . The commercial area will be invoiced and GST applies to all income. The resi has zero 0% GST. The costs for the property must be apportioned between commercial area and resi. Lets say water rates. No gst so no issue. But lets say whole building needs painting. The 20% commercial you can claim the tax credits. The other 80% you cant claim any of the GST paid. resi property is input taxed. This means owner cant claim ANY GST paid even if it is paid. Likewise you dont charge GST either.

HOWEVER....If a single tenant leases whole site you may have another issue. Residential property can also be commercial use and subject then to GST !
In otherwords GST on 100% of rents. (Commercial resi premises). Its only GST 0% rated where the USE of the property is resi and its fit for occupancy. You will find the premises user will want a tax invoice with GST if its a business. And then you can then claim 100% of GST on outgoings. You need to evaluate what it will yield as resi v's as commercial (incl GST) and see which is better choice. You may find as resi it will yield $300 p/w and with Commercial $330 a week is OK too.

GST is such a simple complex tax. Message is get basic advice on your circumstances to avoid mistakes. This isnt the place. Its just generalised info. Happy to talk off line if you dont know where to start
 
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