THE introduction of the Goods and Services Tax has resulted in the establishment of three systems under which commercial property sales can be taxed, and the decision as to which brings the greatest benefit is still causing
THE introduction of the Goods and Services Tax has resulted in the establishment of three systems under which commercial property sales can be taxed, and the decision as to which brings the greatest benefit is still causing headaches throughout the sector.
During the past 12 months, the margin scheme has proved the most popular as, under this system, vendors are only taxed on a portion of the sale.
Using a June 30 2000 property valuation, vendors calculate the difference between the sale price and the valuation and will then pay GST on this difference, not the sale price.
The Australian Tax Office had envisaged the margin scheme would be used primarily in the residential property sector, however the commercial property sector also has embraced the system.
But as time goes on this scheme is expected to lose popularity as vendors began to recognise the benefits of selling a property as a going concern, according to Colliers Jardine research manager David Cresp.
A property can be sold as a going concern, and not incur any GST, if it is income-producing and substantially leased.
“During 2000-2001 there has not been much capital growth, so under the margin scheme people are paying little or no GST,” Mr Cresp said.
“And at the moment, selling property as a going concern cannot be done on straight forward offer and acceptance forms … it is unfamiliar territory for many people.
“But as capital growth increases, selling property as a going concern will become a more standard practice.”
Property Council of WA executive director Joe Lenzo said the ATO also needed to clarify some elements of the ‘going concern’ legislation before it would be embraced.
“Many of our members are still asking whether they can sell a property as a going concern or not … we are still working our way through it,” he said.
If a property cannot be classified as a going concern, then vendors have another option to sell it subject to GST.
Under this system, most purchasers would be able to reclaim the GST component of the sale price.
“But a buyer would have to pay thousands of dollars in GST at the time of the sale and wait possibly months to claim it back on Business Activity Statements, and this could create some cash flow problems,” Mr Cresp said.
The final way in which a property could be sold is subject to GST, and most purchasers will be able to reclaim the GST component.
Mr Lenzo also said the introduction of the GST should have resulted in the disappearance, or at least reduction, of stamp duty.
But this did not appear to be a likely scenario, he said.
“The whole idea of the GST was to take away the many individual taxes and replace them with the one,” Mr Lenzo said.
“But after the changes to the GST were made, the Government realised it would collect less revenue than it previously thought.
“This gave the State Government an excuse not to drop stamp duty, saying they don’t get enough money from the Federal Government.
“In reality, the Government will never have enough money and they will want to keep these individual taxes as long as they can … and the property sector is seen as a soft target.”
Plans firm for Dunlop House redevelopmentTHE long-vacant Dunlop House may soon be given a new lease on life, with a $3 million offer from an Australian investor now under contract.
The sale is expected to go through in August when the due diligence process is expected to be completed.
Singapore-based Blessed Asset Invest-ments put the historic building, at 418 Murray Street, on the market last year, calling for expressions of interest.
“An offer was received, close to $3.5 million, but that fell through and we put the property back on the market” said David Kennedy of CB Richard Ellis.
Joint selling agent Warren Tucker said the property had attracted a good deal of attention with “quite a few people expressing interest in it”.
And though the property has
a development approval for a
four-star hotel, the new owners have their own plans for Dunlop House.
“The new proposal is for 2500sqm of retail and office development with a new residential tower with 45-apartments,” Mr Kennedy said.
Blessed Asset Investments bought the west-end property in 1997 from Arcadia Securities, a company owned by Abe and Doreen Saffron.
A $54 million hotel development was planned for the 1800sqm site, with the proposal including 245 rooms, café, bar and restaurant and a basement nightclub.
The Perth City Council approved plans for the 16-storey hotel in 1999 but construction never started.
In more recent times the build-ing, built in 1921, has been better known for its nightclub tenants, which have included the Mercury Room, Club Rumours and the short-lived Club 418.
During the past 12 months, the margin scheme has proved the most popular as, under this system, vendors are only taxed on a portion of the sale.
Using a June 30 2000 property valuation, vendors calculate the difference between the sale price and the valuation and will then pay GST on this difference, not the sale price.
The Australian Tax Office had envisaged the margin scheme would be used primarily in the residential property sector, however the commercial property sector also has embraced the system.
But as time goes on this scheme is expected to lose popularity as vendors began to recognise the benefits of selling a property as a going concern, according to Colliers Jardine research manager David Cresp.
A property can be sold as a going concern, and not incur any GST, if it is income-producing and substantially leased.
“During 2000-2001 there has not been much capital growth, so under the margin scheme people are paying little or no GST,” Mr Cresp said.
“And at the moment, selling property as a going concern cannot be done on straight forward offer and acceptance forms … it is unfamiliar territory for many people.
“But as capital growth increases, selling property as a going concern will become a more standard practice.”
Property Council of WA executive director Joe Lenzo said the ATO also needed to clarify some elements of the ‘going concern’ legislation before it would be embraced.
“Many of our members are still asking whether they can sell a property as a going concern or not … we are still working our way through it,” he said.
If a property cannot be classified as a going concern, then vendors have another option to sell it subject to GST.
Under this system, most purchasers would be able to reclaim the GST component of the sale price.
“But a buyer would have to pay thousands of dollars in GST at the time of the sale and wait possibly months to claim it back on Business Activity Statements, and this could create some cash flow problems,” Mr Cresp said.
The final way in which a property could be sold is subject to GST, and most purchasers will be able to reclaim the GST component.
Mr Lenzo also said the introduction of the GST should have resulted in the disappearance, or at least reduction, of stamp duty.
But this did not appear to be a likely scenario, he said.
“The whole idea of the GST was to take away the many individual taxes and replace them with the one,” Mr Lenzo said.
“But after the changes to the GST were made, the Government realised it would collect less revenue than it previously thought.
“This gave the State Government an excuse not to drop stamp duty, saying they don’t get enough money from the Federal Government.
“In reality, the Government will never have enough money and they will want to keep these individual taxes as long as they can … and the property sector is seen as a soft target.”
Plans firm for Dunlop House redevelopmentTHE long-vacant Dunlop House may soon be given a new lease on life, with a $3 million offer from an Australian investor now under contract.
The sale is expected to go through in August when the due diligence process is expected to be completed.
Singapore-based Blessed Asset Invest-ments put the historic building, at 418 Murray Street, on the market last year, calling for expressions of interest.
“An offer was received, close to $3.5 million, but that fell through and we put the property back on the market” said David Kennedy of CB Richard Ellis.
Joint selling agent Warren Tucker said the property had attracted a good deal of attention with “quite a few people expressing interest in it”.
And though the property has
a development approval for a
four-star hotel, the new owners have their own plans for Dunlop House.
“The new proposal is for 2500sqm of retail and office development with a new residential tower with 45-apartments,” Mr Kennedy said.
Blessed Asset Investments bought the west-end property in 1997 from Arcadia Securities, a company owned by Abe and Doreen Saffron.
A $54 million hotel development was planned for the 1800sqm site, with the proposal including 245 rooms, café, bar and restaurant and a basement nightclub.
The Perth City Council approved plans for the 16-storey hotel in 1999 but construction never started.
In more recent times the build-ing, built in 1921, has been better known for its nightclub tenants, which have included the Mercury Room, Club Rumours and the short-lived Club 418.
