Blog question: GST on Australian Residential Strata
I received the following from a distressed broker:
Allan this is a deeply concerning email to one of my team and it is a constant thing from strata insurers who should know better about their tax implications …. This statement is the very opposite of the tax ruling on residential property !!!!!!!!!!!
Something more for your appearances this has an unlawful 10% improvement on their claims costs leave it with you …..
Darren [surname and email provided]
I attach the email to which Darren supplied with the Insured’s name withheld for privacy reasons.
Good morning Alex
Your telephone call to Lauren in our office yesterday regard GST refers.
The claim notes that [Insured’s name withheld] are registered for GST and claim 100% Input Tax Credit Entitlement.
The ABN Lookup website notes that [Insured’s name withheld] is registered for GST.
We have been advised by your office that [Insured’s name withheld] own the whole complex.
We have been authorised to settle the claim by EFT to [Insured’s name withheld]’ bank account.
Whilst we understand that rental etc for residential properties is GST free – general expenses, maintenance, insurance premiums etc. involved in managing the property are subject to GST and it is our understanding that the GST on these services is claimable on a BAS return.
As we can be subject to audit from the ATO we need to have clarification in writing from the Insured that the GST on these repairs has not been and will not be claimed on BAS before we can authorise the payment of the refund of the GST as processed by Lauren yesterday.
If you have any queries regarding this email please do not hesitate to contact our office again.
I share your frustration. The Australian Taxation site makes it quite clear what the position is and as I see the insurer has made a number of on-line enquiries and you would expect this is not the first time this has arisen, that they would be mindful of the position.
Putting the Insured through this rigmarole is clearly only upsetting everyone and is one of the reasons so many clients change their insurer on the next renewal. I assume you will be voting with your feet with your other client’s so they do not get accused of tax evasion when all they are trying to do is get their rightful entitlement under the policy under the current tax rules on GST.
Nicola Crouch from LMI Forensic based in our Melbourne office kindly researched the current tax regulations on residential strata for me while I am in London to make sure there had not been any recent changes I was not aware of. The ruling from the Australian Tax Office website is as follows:
The clincher is the “residential” status of the property, if the property is commercial, or a combination of commercial and residential it is a different situation.
I have copied some of the text below, along with an example:
If you own commercial, or commercial residential, property that you lease or rent in Australia, you can claim GST credits on purchases you make that relate to renting or leasing your property (subject to the normal rules on GST credits).
However, if the property you rent or lease is a residential property, you are making an input-taxed supply. As a result, you:
- are not liable for GST on the rental income
- cannot claim GST credits for anything you purchase or import to rent or lease the property.
Example: Non-resident company uses local agent
Bourne Ltd (a non-resident company) is GST registered. Bourne Ltd owns a six-storey building in Sydney. A family rents the first two floors as their residential home, and the remaining floors are rented out as commercial premises.
Bourne Ltd uses an Australian real estate agent to manage the property. The provision of services by the real estate agent for the whole property is taxable.
In this situation, Bourne Ltd:
- can claim GST credits proportionately for real estate services provided by the agent that relates to the commercial premises
- cannot claim GST credits for real estate services provided by the agent that relates to the residential part of the building.
Source Australian Taxation Office website – downloaded 5 October 2016
I hope this assists in getting the matter sorted and that the client is now quickly paid the balance they are entitled to.
Two last things. Thanks to Nicola; and for readers of this blog, it is important to include the GST in the sum insured on residential strata and residential homes so that you have sufficient coverage in place in the event of a major loss.