Register for GST OR Not Register for GST

I own a commercial property and the rental income I turn over from it is less than the $75k GST registration threshold.
Tax wise, is it more or less beneficial to register for GST? e.g. Because if I am registered for GST I can claim 10% GST credits on any purchases I make in relation to the property. Otherwise, if I am not registered for GST then I can just claim the whole gross amount in my tax return at my personal tax rate. To me, it seems more beneficial to not register for GST.

Comments

  • +5

    What did your accountant say when you asked them?

    • +5

      yeah nah

    • +11

      He didn't know and suggested OP posted here.

    • +1

      Accountant said ask ozbargainers

    • I'll call you back

  • Think of it this way.

    You have to pay GST to the government on any income you make.
    You gain GST on any costs you incur

    You only see a benefit when your costs > your income i.e. when you're going backwards. If you make a profit you don't want to be GST registered.

    • +1

      If the income is just rental and the tenant is also registered for GST, then GST becomes neutral as you will just +GST.
      You will then be able to claim GST on expenses making you more profitable (excluding additional costs to prepare GST).
      However if the tenant is not registered for GST you will either absorb it in your current price of they will receive an increase in $ GST.

      • Yeah that's true, if the tenant is GST registered. I guess it is worthwhile thinking about whether either all your tenants are going to be GST registered (maybe that's the nature of the premises), or the current one is going to be very long term, mitigating any loss when you need to decrease rent in future to be competitive for potential non GST registered tenants

        • I bought the commercial property with the lease attached. And on the current lease agreement the weekly rent is inclusive of GST so I guess I will need to charge GST. Otherwise, I will probably need to have a new lease agreement.

        • @jche6075:
          When did you acquire this building and did you pay GST on the purchase? if not I assume you used the going concern exemption, which requires you to be GST registered, and you may be liable for GST on the acquisition. If you did pay GST you have missed out on a substantial GST refund. Either way I'd backdate your GST registration ASAP, change lawyers and find yourself a competent professional to help you understand things better.

      • But claiming GST wouldn't make me more profitable. Because if I don't claim the 10% in my GST return then the 10% would just be factored into the gross expenses that i claim in my tax return.

        • +3

          You get ALL of the GST back against GST you're paid by your tenant though, you only get your marginal rate back against any amounts deducted from your personal income.

          So for example you spend $110 incl GST on maintenance for the ppty and have 37% marginal tax rate:

          1. Registered for GST: $10 in GST back, deduct $100 from personal income = $37 less in taxes, total $47.

          2. Not registered: You deduct $110 from personal income = $40.70 less in taxes.

          Second note: If the lease says inclusive of GST, you can't charge that GST component if you're not actually, well, reporting and forwarding that GST to the ATO.

        • @HighAndDry:

          Yeah unless I start charging the GST exclusive rent instead and if the tenant agrees then I can deregister for GST and save on the paperwork as it is not beneficial for me to be registered for GST as my expenses associated with the property is very limited so I don't claim much GST credits anyway.

        • +1

          @jche6075: That doesn't really help - think of yourself as a middleman for the govt: With GST, you pass on tenant's GST portion but also claim GST portion of ppty expenses. Without GST, you don't have to pass on tenant's GST portion…. because they're not paying that to you anymore. And now you can't claim the GST portion of ppty expenses. You do save on accounting expenses though. So, again examples:

          1. With GST: Tenant pays $1,100 in rent, you pay $110 in expenses, you pass on 100-10=90 in GST, deduct $100 from your income = save $37 in tax. Net: You get $657 in net after-tax rentals (and benefits) ($1,100(rental) - $110(expenses) - $90(GST passed on) - $370(income tax on rent) + $37 (income tax saved on deductions)). [The $370 and $37 are only coincidentally similar because you make $1,000 in rental income and deduct $100 in rental expenses, they're not related.]

          2. Without GST: Tenant pays only $1,000 in rent, you pay $110 in expenses, you deduct $110 from income = save $40.70 in taxes. Net: You get $560.70 in net after-tax rentals ($1,000(rental) - $110(expenses) - $370(income tax) + $40.70(income tax saved on deductions)).

          The examples use $1,000 rental (ex GST), $110 rental expenses, and 37% marginal tax rate.

          Under this example, the question becomes: Do you spend $98.30 in GST accounting expenses after tax? (Tax prep expenses are tax deductible).

          Seriously - go ask your tax accountant which one works out better in the end for you. They'll have the benefit of having the actual numbers to work with.

        • @HighAndDry:

          That makes sense. For me my GST on rental income is about $2,000 and my GST on expenses is only about $100 so definitely better to not register for GST.

  • +1

    idontknow

  • +1

    Serious question though.

    Can anyone here recommend an accountant that won't break the bank for "question time". I've seen anything up to $350/hr or so for the head accountant a practice so I'm wondering what the happy medium is between airtasker accountants and that head guy.

    • I just shoot my tax accountant an email with questions and he answers them. I've only ever been charged for my personal income tax lodgement fee - but I've got pretty simple affairs so not sure if you're after anything more (or if he'd charge for more)

      He was recommended to me by someone on OzB, so shoot me a PM if you're interested in details.

      • Hello. Yes can you please PM me the details. Thanks.

      • Cheers.

        I suppose the question is more tailored to those that do their own tax and don't have a regular accountant.

        It pays off at a point in time.

    • $350 for an hour with a senior partners? that's not that bad compared to what partners at the big 4 charge!

      I think you'd find most small firms/sole practitioners would charge $100-$150 to prepare a straight forward ITR and they'll answer reasonable questions on the spot at no extra cost. If you wanted the same advice, but only the advice they'll write it up, send it to you and charge you significantly more.

  • I turn over from it is less than the $75k GST registration threshold.

    As long as gross income for all income on that ABN is under $75k, you're ok.

    Because if I am registered for GST I can claim 10% GST credits on any purchases I make in relation to the property

    Correct

    Otherwise, if I am not registered for GST then I can just claim the whole gross amount

    Also correct

    So you need to work out whats better for you etc.

    It might be time to upgrade from ozaccountant to a real accountant.

  • +2

    If you register for GST, you also need to take into consideration the additional time spent preparing a BAS each quarter, and the potential cost if you are planning to have an accountant prepare the BAS for you.

    • I really don't know why people are scared of doing BAS each quarter. I have two companies registered for GST and it takes me about 5 minutes per company to do a BAS statement. Why would anyone need an accountant for that.

      I use Xero to manage all transactions, income vs expense that is automatically reconciled against the bank statements daily. When it comes round to BAS time, I just press a button on Xero to calculate everything for me.

      • Agreed. Took me a bit to get my head around it when I first started. Now it's a routine chore.

        If you've got a busy business, you may want to hire a book keeper. An accountant for BAS is overkill for a small business. Seeing that OP only has one commercial property under that ABN, even a book keeper is a bit much.

      • +1

        Agreed. Though in your example, your Xero subscription is not free.

        The administration that comes with a GST registration will have a cost in both time and money. Regardless of whether the cost is big or small, it needs to be taken into consideration when making the decision of whether to register.

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