GST quandary

Question from botany updated on 10th December 2018:

I am keen to purchase a hotel managed property. The rental income includes GST but annually it is less than $60,000. The property price is $xx plus GST. Can I know if I have the option of NOT registering for GST? And, if so, do I need to do anything? How about the rental which is inclusive of GST? I am happy to pay the GST on the property price.

Our expert Matthew Gilligan responded:

You asked if it is possible to acquire this property in a non-GST registered entity. The answer to that specific question is yes. Given that the turnover is less than $60,000, and assuming that you are not running another taxable activity that when added to this would see your turnover exceed the $60,000 mark, you are not compelled to be registered for GST. Therefore, you could acquire it in a non-GST registered entity.

If you were to do so you would have to pay the purchase price plus the GST component and obviously would not be able to claim that GST component back. Assuming that there is a contract in place whereby the hotel manager pays you as owner a fixed rent “plus GST”, if you are not GST registered then you will not charge them the GST component. You will end up with the same amount in your hand. On the other hand, you will lose ability to claim GST on your costs.

Accordingly, not being registered for GST will be disadvantageous to you in the short and medium term in regard to cashflow. It means it will cost you more to purchase the property because you will be paying the GST component on the purchase price without the ability to claim it back. You will be receiving the same rent net in the hand, as the hotel manager will simply cease to pay you the GST component on that and you will lose the ability to claim GST on expenses incurred.

The silver lining in the long run though, is that when you sell, you will be selling as a non-registered vendor and therefore will end up with more sale proceeds in your hands.

Matthew heads GRA's specialist property and asset planning division. He helps clients create optimal tax structures and build wealth through property. He has an extensive buy-to-hold property portfolio, is currently involved in over a dozen developments, and is author of two books - Property 101 and Tax Structures 101.

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