Plus GST problems

Question from Meridee updated on 14th May 2013:

We own seven residential rental properties and are looking at purchasing another property. There are two properties that I am currently interested in. Both are deemed commercial therefore purchase price is plus GST (if any). I am happy with the current entities we have for owing property - all our rentals are in a non-GST registered company. The properties I am looking at would both be rented as normal residential rentals. One is in a block of units designed to appeal to builders, plumbers etc, with large garaging underneath a three-bedroom apartment. The other is a standalone apartment - out of the management pool within a complex. My problem is the sellers are wanting plus GST and because I am not GST registered the price is not realistic. Any suggestions appreciated.

Our expert Mark Withers responded:

You say that despite the properties being "deemed commercial" you intend to let them "as normal residential rentals". If this is the case you will not have a taxable activity for GST purposes because the provisinon of accomodation in a dwelling on a standard residential tenancy basis is exempt from GST. This means you don't even have the option to become registered. Accordingly any offer you make should be inclusive of GST and you should complete your schedule 2 GST warranty on the basis that you are an unregistered purchaser who will not be conducting a taxable activity from the property. It is not wise to talk yourself into paying more than the property is really worth of the strength of an invalid taxable activity for GST. The only way a genuine GST registration would be appropriate is if you let the porperty on a commercial lease. This would not include the provision of accomodation in a dwelling. The contract can still be drafted plus GST if this is the way the vendor wants to present it but the price obviously needs to be reduced by 15% if you are to achieve your desired outcome.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

Search the Ask an Expert archive

Browse all questions in the Ask An Expert Archive »

Site by PHP Developer