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GST - APARTMENT INVESTORS WARNING |
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Be very wary
of opportunities to invest in a serviced apartment complex, on the basis of
registering for GST and obtaining the apartment GST free. The way the arrangement
works is that an investor is given the opportunity to purchase a unit in a
serviced apartment complex GST free as a going concern. The apartment
is one of many in the same complex operated by an organisation which rents
out short term accommodation in serviced apartments. Unfortunately,
the ATO has issued rulings etc., which suggest that 'most' serviced
apartments are not for GST purposes regarded as commercial residential
premises - the ATO regards them as residential premises only. As a consequence
the income derived from these serviced apartments is residential rental
income, an input taxed supply. This means, the
investor who
purchased the apartment GST free will be treated by the ATO as if the
purchase of the apartment had not
been GST free. This means the investors
net GST amount will be increased by the GST that would have been payable on
the purchase if it had been subject to GST. For example, if
the investor paid say $500,000 when acquiring the serviced apartment GST
free, the investor would owe the ATO $50,000 in GST that should have been
paid in respect of that apartment. The investor
will not be able to use the margin scheme or be able to claim an input tax
credit. Note: The fact that GST may be charged on rent proceeds
does not automatically mean it is commercial residential premises - the rent
may be incorrectly treated!
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