There is much variance, disagreement and confusion amongst advisors to real estate Principals regarding the application of GST upon the sale of a rent roll. This “variance” comes down to one particular point in relation to the sale…….but more on that shortly.
So who wants to pay more Tax?
Nobody put this question into better perspective than Kerry Packer who in 1991 was facing a federal investigation into the print media industry where he was asked whether he tried to legally cut the amount of tax he paid. His reply, as only Mr Packer could, “If anybody in this country doesn’t minimise their tax, they want their heads read, because as a government, I can tell you, you’re not spending it that well that we should be donating extra,”
None of us want to pay more Tax than we have to and even in this circumstance where the GST is likely to eventually be “refunded” in due course it isn’t an ideal cashflow position. Last week I spoke with the ATO for a ruling on its position regarding GST and real estate rent roll sales after accountants conflicted in their advice to the buyer and seller of a sale. Their response was to direct me to a website which covers the rulings of GST.
Firstly I was referred to http://law.ato.gov.au/atolaw/view.htm?docid=GST/GSTR20025/NAT/ATO/00001 and attention diverted to Paragraph’s 94 & 95 which reads:
94. DeliCo conducts a delicatessen business from leased premises adjacent to a large grocery retailer within a suburban shopping mall. DeliCo negotiates the sale of the business to another registered entity, NewCo, which has its own premises from which it intends to operate the delicatessen. The contract provides that the business name, plant and equipment, stock and goodwill are to be supplied to NewCo. DeliCo retains its premises and intends to commence another business from these premises.
95. Because the delicatessen is conducted from premises within the mall, some premises are necessary for the conduct of the delicatessen business. The supply is not the ‘supply of a going concern’ as DeliCo is not supplying premises which are one of the things that is necessary for the continued operation of the supplier’s enterprise.
The matter of an ongoing concern, I was told by the ATO, is generally defined by the need for the seller to supply the materials necessary to continue the business. This, he said, would be the requirement to provide the equipment necessary eg Fax machine, software etc and most importantly the premises in which the business was conducted. The first website above discusses this by saying it is necessary to supply premises to be considered the “supply of an ongoing concern”.
Further research took me to this website:- http://www.ato.gov.au/businesses/content.asp?doc=/content/19995.htm&page=1#P450_36547
14.13 Rent Roll
14.13.1 Is the sale of an agent’s rent roll subject to GST?
ATO Position – Yes, if the agent selling the rent roll is registered or required to be registered for GST. (If the rent roll is sold as part of the sale of the agent’s property management business, it may be GST-free as a supply of a going concern. For more information about GST-free supplies of going concerns, see GSTR 2002/5
So finally, if you buy a rent roll and relocate it to your own business at different premises, it is not considered an ongoing concern and therefore is subject to GST.
Should you purchase the rent roll and decide to operate it from the same location, it is very likely to be GST free and considered to be a sale of an ongoing concern.
The GST on the eventual sale, from the ATO’s perspective, is the responsibility of the seller. Should GST not be applied to the sale and the ATO at a future point were to decide GST is to be attributed to the sale, the seller will be expected to pay the outstanding GST.
As Kerry Packer said, don’t pay any extra than you have to, however, the Tax office is known to wield a big stick when it comes to not paying what it deems as being due.
Real Estate Agency Sales specialises solely in the sale of Real Estate Agencies and Rent Rolls, that’s all we do. Contact us on 3266 4242 or firstname.lastname@example.org.