ALTHOUGH the GST has now arrived, there is confusion in many areas.
ALTHOUGH the GST has now arrived, there is confusion in many areas.
CPA Australia has provided the answers to several questions as to how the GST applies to property.
Q. I run a small hobby farm. How will the GST impact on me?
The first issue is whether you need, or are entitled, to register for GST.
In order to be entitled to register for GST, you must be carrying on an enterprise.
If the farm is really just a hobby, then you are not carrying on an enterprise and will not be entitled to register for the GST.
Assuming your farm passes the enterprise test, you will be required to register for GST if your annual turnover is $50,000 or greater.
However, registration is optional if your annual turnover is less than $50,000.
If you register for GST, you will need to work out whether your sales are GST-free or taxable.
Generally speaking, sales of animals, unprocessed grains and unprocessed milk will be subject to GST, while sales of fruit and vegetables will be GST-free.
Registered farmers will need to account for GST on any taxable sales that they make, but will be entitled to claim input tax credits to recover any GST charged by their suppliers.
By contrast, unregistered farmers will not have to account for GST on their sales but will be unable to recover the GST charged by their suppliers.
Q. Do tax withholding arrangements apply to rents received on commercial properties?
Owners of commercial property will be considered to be carrying on an enterprise for both GST and PAYG (pay-as-you-go) purposes.
This is because an ‘enterprise’ is defined broadly to include any activities done on a regular basis in the form of a lease or licence of real estate.
Consequently, these property owners will be required to quote an ABN on rental invoices issued to the lessee where the lessee itself is carrying on a business, otherwise the lessee or payor will be required to withhold tax from the rental payment at the rate of 48.5 per cent.
To avoid withholding of tax in these circumstances, commercial property owners should apply to the ATO for an ABN immediately.
Q. I have a residential property where my tenant carries on a home-based business. Do I have to have an ABN in this case?
No. The Australian Taxation Office recently moved to clear up confusion on this issue. Where the basis of the arrangement is a residential rental agreement, owners will not have to quote an ABN to their tenant, even if there is some minor business use of the property by the tenant.
There will also be no requirement for residential rental property owners to quote an ABN to an organisation providing residential accommodation for its employees (e.g. through the Defence Force Housing Authority).
However, residential rental property owners are still required to check that those who provide any goods or services for the rental property (e.g. plumbing services) quote an ABN on their invoice if the value is greater than $50.
If they don’t, the landlord should withhold 48.5 per cent of the payment. The property owner does not need an ABN to do this.
Q. Can I claim input tax credits for commission paid to real estate agents?
After 1 July 2000, when a landlord engages a real estate agent to manage the letting of a piece of property, any commission charged by the agent will include GST.
Where the property in question is residential property, the landlord will not be entitled to claim input tax credits to recover the GST included in the commission charged by the real estate agent.
The reason for this is that the letting of residential property is ‘input taxed’ for GST purposes, meaning that landlords are not entitled to claim input tax credits for any costs incurred in relation to the property.
This means that input tax credits are not available for repairs, maintenance, agents’ fees and any other residential property-related costs.
By contrast, if the property in question is a commercial property, then a registered landlord would be entitled to claim input tax credits for all property-related expenses including any commissions paid to the real estate agent.
l For more free information on the GST, contact the GST Assist 13 30 88 Helpline.
CPA Australia has provided the answers to several questions as to how the GST applies to property.
Q. I run a small hobby farm. How will the GST impact on me?
The first issue is whether you need, or are entitled, to register for GST.
In order to be entitled to register for GST, you must be carrying on an enterprise.
If the farm is really just a hobby, then you are not carrying on an enterprise and will not be entitled to register for the GST.
Assuming your farm passes the enterprise test, you will be required to register for GST if your annual turnover is $50,000 or greater.
However, registration is optional if your annual turnover is less than $50,000.
If you register for GST, you will need to work out whether your sales are GST-free or taxable.
Generally speaking, sales of animals, unprocessed grains and unprocessed milk will be subject to GST, while sales of fruit and vegetables will be GST-free.
Registered farmers will need to account for GST on any taxable sales that they make, but will be entitled to claim input tax credits to recover any GST charged by their suppliers.
By contrast, unregistered farmers will not have to account for GST on their sales but will be unable to recover the GST charged by their suppliers.
Q. Do tax withholding arrangements apply to rents received on commercial properties?
Owners of commercial property will be considered to be carrying on an enterprise for both GST and PAYG (pay-as-you-go) purposes.
This is because an ‘enterprise’ is defined broadly to include any activities done on a regular basis in the form of a lease or licence of real estate.
Consequently, these property owners will be required to quote an ABN on rental invoices issued to the lessee where the lessee itself is carrying on a business, otherwise the lessee or payor will be required to withhold tax from the rental payment at the rate of 48.5 per cent.
To avoid withholding of tax in these circumstances, commercial property owners should apply to the ATO for an ABN immediately.
Q. I have a residential property where my tenant carries on a home-based business. Do I have to have an ABN in this case?
No. The Australian Taxation Office recently moved to clear up confusion on this issue. Where the basis of the arrangement is a residential rental agreement, owners will not have to quote an ABN to their tenant, even if there is some minor business use of the property by the tenant.
There will also be no requirement for residential rental property owners to quote an ABN to an organisation providing residential accommodation for its employees (e.g. through the Defence Force Housing Authority).
However, residential rental property owners are still required to check that those who provide any goods or services for the rental property (e.g. plumbing services) quote an ABN on their invoice if the value is greater than $50.
If they don’t, the landlord should withhold 48.5 per cent of the payment. The property owner does not need an ABN to do this.
Q. Can I claim input tax credits for commission paid to real estate agents?
After 1 July 2000, when a landlord engages a real estate agent to manage the letting of a piece of property, any commission charged by the agent will include GST.
Where the property in question is residential property, the landlord will not be entitled to claim input tax credits to recover the GST included in the commission charged by the real estate agent.
The reason for this is that the letting of residential property is ‘input taxed’ for GST purposes, meaning that landlords are not entitled to claim input tax credits for any costs incurred in relation to the property.
This means that input tax credits are not available for repairs, maintenance, agents’ fees and any other residential property-related costs.
By contrast, if the property in question is a commercial property, then a registered landlord would be entitled to claim input tax credits for all property-related expenses including any commissions paid to the real estate agent.
l For more free information on the GST, contact the GST Assist 13 30 88 Helpline.
