Like many things, the acquisition of a business [in this case a rent roll] can be subject to GST. While in most cases a buyer of a rent roll will be able to claim back the GST paid on their next Business Activity Statement [BAS], the implications on cashflow for the buyer can be significant.
In part 5 of our rent roll series, we discuss whether GST is applicable to buyers and the importance of considering all tax and duty implications when entering into and reviewing a rent roll agreement.
If you need to catch up on the earlier part of our series, click here!
Is GST applicable to rent roll acquisitions?
It’s often not until contracts for a rent roll acquisition are being reviewed that the GST consequences of acquiring the rent roll are considered. As the experts, we often get asked by buyers whilst they are reviewing the contract whether the acquisition will be a GST Free Going Concern.
The upside of an acquisition being a GST Free Going Concern is that an additional 10% of the purchase price will not need to be financed at settlement by the buyer.
It’s also important to note in states where business sales are subject to transfer duty, it is the GST inclusive consideration that is used when calculating transfer duty.
Although as an acquirer, you are likely to receive the GST component of the acquisition price back on your next lodged BAS, the extra transfer duty you incur on the GST component will not be refundable to you.
In order for an acquisition of a rent roll to be a GST Free Going Concern there are a few conditions that need to be met:
- The seller supplies all things necessary to continue to carry on the business
- The seller continues to operate the business until the day of sale
- The purchaser is registered for GST
- The seller and purchaser have agreed in writing that the supply is a going concern
It is often the first condition of the above list that is the most difficult to satisfy. There is no clear definition of what “all things necessary” means in the context of a rent roll sale.
Although not exhaustive, the list below are some of the items that can be included as being necessary to continue to carry on the business:
- Management agreements and property data [essential in order to make an acquisition work]
- Transfer of lease of business premises
- Transfer of business names and trademarks
- Employment by purchaser of some or all of the vendors property management staff
- Vehicles used by the property management business to make inspections, do open homes etc
- Transfer of phone numbers or email addresses associated with the property management business
Not all of the above are essential to make an acquisition a Going Concern, but the more items you can tick off the more likely the transaction will be considered the supply of a Going concern.
The fourth condition is usually dealt with in the clauses of the sale contract by both parties agreeing that it is a going concern. There are also usually further clauses that will deal with the later payment of GST should the transaction be found by the tax office to not be a going concern.
It’s critical to discuss these clauses with both your solicitor and accountant to understand how they will apply to you.
It’s essential to talk as early in the purchase process as possible to your accountant, solicitor and financier to understand how GST and transfer duty will be applied to your rent roll acquisition.
While paying an additional 10% in GST on the acquisition may only have a cashflow impact until the lodgement of your next BAS, a large rent roll acquisition will have a large GST component, which could make that cashflow impact significant.
Depending on the cash position of your business, it may also require you to get an additional loan from your bank to initially fund the GST component of the acquisition.
Where possible, an acquisition of a rent roll on a GST Free Going Concern basis will mean that your business will pay less transfer duty [in jurisdictions where applicable] on purchase and have a less significant cashflow impact to the ongoing operations.
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If you are considering selling or buying a rent roll, feel free to reach out to us at email@example.com or give us a buzz at 1300BDEPOT to discuss the potential agreement and all aspects of the sale or purchase.
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general advice disclaimer
The information provided in this booklet is a brief overview of the subject matter and does not constitute any type of advice. We endeavour to ensure that the information provided is accurate however, information may become outdated as legislation, policies, regulations and other considerations constantly change. Individuals must not rely on this information to make a financial, investment or legal decision and should consult an appropriate professional before making any decision.