Commercial Property

A client owns a single commercial property as an investment. The client had not planned to register for GST because the rental return is less than $75,000 per annum. However, the client wants to sell and the sale of the property will raise more than $75,000. Does this mean the client needs to register after all?

No.  Under s.188-25 the value received on the disposal of a capital asset by an entity that is neither registered nor required to register for GST is disregarded for the purposes of calculating projected annual turnover and so the proceeds of sale will not be treated as turnover for the purpose of the registration turnover threshold.


A client owns a commercial property which returns $75,000 per annum in rental income. The client is registered for GST purposes. Will the sale of the property be considered a sale in the course or furtherance of the client's enterprise even though the sale effectively brings that enterprise to an end?

Yes.  ‘Carrying on’ an enterprise ‘includes doing anything in the course of the ... termination of the enterprise’ (s.195-1, GST Act).


A client owns a number of properties including a holiday home which a real estate agent is engaged to rent out on a temporary basis. Will this be treated as ‘commercial residential premises’ for GST purposes?

For a holiday home to be treated as ‘commercial residential premises’ it would need to be similar to a hotel, motel, inn, hostel or boarding house. The ATO in its final ruling GSTR 2000/20 sets out the eight characteristics that premises would have to possess to be considered ‘commercial residential premises’. They are:


Can the sale of single tenanted commercial premises qualify as the supply of a going concern and therefore be GST-free?

Yes. The ATO's ruling GSTR 2002/5 recognises that leasing activity on a regular or continuing basis is an enterprise and can be the subject matter of a supply of a going concern. The ruling does not seek to distinguish between multi-tenanted and single-tenanted premises nor to rule out sales of single-tenanted commercial premises as qualifying.

However, it is not in the interests of the vendor to structure a sale in the expectation that it will qualify as the supply of a going concern if there is any question as to whether the conditions of the section will be satisfied. The reason is that if the ATO later decides supply does not qualify, GST will be assessed against the vendor perhaps with penalties and interest. The vendor will then have to rely on the GST clause in the contract to recover the GST from the purchaser. While many purchasers will pay (and obtain the input tax credit) others may not. Note that input tax credits are not available for amounts paid for penalties and interest.

To be able to recover penalties and interest under the GST clause, the definition of GST should be expanded to include penalties and interest; even then, there is no certainty that penalties would be recoverable.


Is the adjustment of rent for the sale of tenanted commercial premises done on a GST exclusive or inclusive basis?

The adjustment between the vendor and purchaser of tenanted premises is done on a GST exclusive basis.  The vendor of the land has to account for the GST for the whole of the month in which settlement occurs even though settlement may occur on the second day of the rental period. 

 

Is the adjustment of rent for the sale of a business conducted from tenanted premises done on a GST exclusive or inclusive basis?

The adjustment between the vendor tenant and the purchaser tenant is done on a GST exclusive basis.  The vendor tenant is entitled to claim the GST for the whole of the month as an input tax credit even though it may only be the tenant for the first day of the month - there is only one tax invoice for the month and the vendor will have and retain that.

 

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