Blog - Commercial
INVESTING IN COMMERCIAL PROPERTY? CONSIDER THE GST IMPLICATIONS …
Are you about to get involved with a commercial property? Have you considered the GST implications?
As a Sales and Leasing Agent, I am often asked about the GST implications of purchasing a commercial property. Unfortunately, there is no one right answer – when it comes to investing every situation is different. It’s important to structure your assets in a way that works for you and to consider requirements and risks before you sign on the dotted line.
I’ve listed some of the more frequently asked questions and answers that I receive from buyers below. But I strongly advise that you consult your solicitor, financial advisor and real estate agent before entering into any type of commercial investment.
1) Do I have to register for GST?
Not always, but it’s best to seek professional advice. Even if you do not end up paying GST on the sale price, you may need to register for GST if your organisation has a GST turnover of $75,000 or more ($150,000 for non-profit organisations).
You can find out more about registering for GST here or by speaking with your financial advisor.
2) What is a going concern?
If a business is sold as a ‘going concern,’ it means that the sale is exempt from GST because it met all of the following five conditions:
- It was exchanged for money or something of value (was for consideration)
- Both the buyer and seller were registered for GST
- Both the buyer and seller agreed in writing that the sale was a supply of going concern
- The seller supplied ‘all things necessary’ for the continued operation of the business being sold, for the foreseeable future
- The seller carried on the business until the settlement date.
You can read the ATO’s definition of a ‘going concern’ here.
Note: The ATO regularly updates the going concern exemption requirements. For the most current information, visit the ATO website or speak with your financial advisor.
3) Who’s liable if going concern requirements are not met?
Sometimes what you think is required is not enough to satisfy the ATO that the sale is a supply of going concern. In these cases, it’s often the vendor who is liable to pay back the GST, interest and any other related penalties.
4) Will I have to pay GST on the sale of a tenanted property?
If you meet the going concern exemption requirements, no GST will be payable on the sale. However, GST will typically need to be included in the rent paid by your tenant.
5) How does it work with partially tenanted properties or buildings seeking a tenant?
Even during a period of vacancy, a space that was previously leased to a tenant can be supplied as a going concern if:
- It is being actively marketed for lease* or is undergoing renovations
- All leases, agreements and contracts were included in the sale
However, if a property is not actively seeking a tenant or was not previously leased by a tenant, GST is likely to be payable. There may be circumstances that make you exempt or reduce your liability. So, talk to your tax or business planner.
*You must be able to prove that you are actively seeking a tenant (e.g. evidence of advertising).
6) Can I purchase a commercial property through my self-managed super fund (SMSF) and lease it back to my business?
In short, yes, and it can be very tax effective. However, the ATO keeps a close eye on SMSFs and requires investments to be made on an ‘arms-length’ basis, as if there was no relationship between the parties. Be aware that:
- The terms of the lease must be commercially competitive – this means no mates rates
- You can’t skip payments – all rental payments must always be paid on time and in full
- The property must undergo regular valuations – visit the ATO website for valuation guidelines
- The investment must pass the sole purpose test – that is, you must prove that the sole purpose of the investment is to pay benefits members in retirement, death, termination of employment, ill health etc.
When it comes to investing through your SMSF, the stakes are high and there are a number of risks. So, seeking professional advice is strongly recommended.