As an Australian landlord, understanding the implications of Goods and Services Tax (GST) on land tax can seem like a massive job. But you’re not alone, and you’ve come to the right place. Balancing the books can get complicated, particularly when it comes to handling taxes on your rental properties.
In actual fact, tax doesn’t have to be, well, taxing.
Let’s take a look.
How Does GST on Land Tax Work for Landlords?
Being a landlord in Australia involves navigating a maze of financial obligations, including the Goods and Services Tax (GST) on land tax. So let’s start breaking things down.
As a landlord, you must charge GST on top of certain incomings when you pass them on as recoverable incomings. These can include land tax.
Just like tenants who may be required to pay GST on their rent, it is integral for you to understand your responsibilities towards GST. This is especially true if you lease a commercial property where the rental income exceeds $75,000 per annum. Earning beyond this threshold involves GST registration.
In a twist that can lift some burden off your shoulders, if a property already tenanted or partially tenanted gets sold as a supply of going concern, the buyer could be exempted from GST given certain conditions. These nuances highlight the importance of getting the complete picture when navigating GST on land tax.
The Australian Tax Office (ATO) has also developed a nifty tool, the GST property decision tool, to aid in determining GST implications for various property-related transactions. This tool is extremely worthwhile exploring to ensure you’re fully across all GST requirements.
Remember, rental income is one of the determining factors when it comes to your GST turnover for commercial property. Depending on your entity’s GST registration status, the GST component of rent costs can be claimed as a GST credit in some instances.
How to Calculate GST on Land Tax Accurately
Remember, seeking a registered tax professional’s guidance or contacting the Australian Tax Office (ATO) directly is really important to get exceptionally precise figures in line with your specific situation.
However, let’s break down the steps for a broad understanding:
- Understand your GST status: As a landlord of commercial property, it’s essential to know your GST status. GST applies to most commercial property transactions, but there are exceptions, such as farmland sold based on continued farming. You can use the ATO’s GST property decision tool linked above to determine your specific GST implications.
- Calculate your overall turnover: Next, calculate your overall turnover, including your rental income. If your annual turnover exceeds the GST threshold, you must register for GST.
- Deduct GST credits: If you’re registered for GST, you can claim GST credits for the GST component of your business costs – including any land tax you’re liable for. These claims can considerably boost your business returns at tax time.
- Add GST to selling price: If you decide to sell your commercial property or taxable land, you’ll need to consider the additional GST value in the selling price. This also includes investment properties.
GST on Land Tax: Real-Life Scenarios
Let’s look at some real-life situations paying land tax with GST may apply in line with the tax system.
Scenario 1: Selling a Commercial Property
Say you’re about to sell a commercial premise you own. Now, depending on the GST registration status of your business, the sale of your property may or may not be subjected to GST. Generally, the GST is assessed on the adjusted property purchase price (which includes any council fees, water rates, land tax and other expenses).
If your business is registered for GST, you would be required to charge GST on the sale of your property. However, you could claim GST credits for any returns from your business during the tax season.
Note that if you fail to pay the land tax.
Scenario 2: The Consequences of Unpaid Rent
Let’s say a tenant cannot pay their rent owing to unforeseen circumstances. The relative GST adjustment for unpaid rent must be considered in a situation like this.
This might automatically increase your GST payable, putting you in a precarious situation. Therefore, landlords must always factor lease defaults into their planning activities.
A note to remember is that rental income is considered when determining GST turnover for commercial property. This implies that the GST you must pay or the tax credits you can claim may vary with the rent you earn.
Difficult to grasp? Not to worry. The Australian Taxation Office (ATO) has developed a GST property decision tool to offer you personalised information about your GST obligations based on your circumstances. This ensures you’re always in compliance with your tax obligations.
Your Checklist: Preparing for GST & Land Tax Payable
If you’re a landlord in Australia, preparing for the impact of Goods and Services Tax (GST) on land tax is paramount. Here’s a handy checklist to help you navigate the process:
- Determine your GST registration status: Are you registered for GST or not? This status determines whether the sale of your commercial property incurs GST. Generally, as a property owner, you must register for GST if your GST turnover is $75,000 or more.
- Selling Commercial Property: If you’re selling a commercial property, you’re obliged to include the additional GST value in the selling price. Buyers also consider this when looking into a property.
- Due Diligence: You cannot overemphasise the importance of rigorous due diligence when evaluating GST issues relating to commercial or residential properties and transactions. Always take the time to look at the finer details and the tax liability you carry under the Land Tax Act.
- Understanding Your Buyer’s Rights: Are you aware that the buyer can claim back the GST under certain conditions? These conditions include both the buyer and seller being GST registered, the property being recognised as used for carrying on an enterprise, the seller issuing a comprehensive tax invoice for the purchased property, the property not being purchased as a GST-free supply and you, the seller, not resorting to the margin scheme for calculating the GST included in the price of the property.
- Farm Land: There’s something special about farmland. It attracts GST-free status when sold to a farmer for continued use as farm land.
- Developing and Selling a Property: If you’re developing and selling property, be aware that this could be viewed as carrying on an enterprise, thus necessitating GST registration.
- Contact the Australian Tax Office (ATO) or a Tax Professional: For any specific queries or advice regarding GST on commercial property, it’s always recommended that you contact the ATO or consult a registered tax professional.
- Rent and GST: Are your tenants aware that they may have to pay GST on their rent? This is essential information they need to understand.
Take some time to review all these factors, and you will get a better understanding of whether GST on land tax applies to your situation. Knowledge is power; in this case, it could save you a lot of money and stress.