If you own a commercial rental property, below is a checklist to assist you when gathering the information you need to prepare your tax return.
Rental income and expenses:
If you have rented out all or part of a commercial property during the financial year, you will need:
- Annual rental statement showing income earned and expenses paid (if you use a commercial leasing agent);
- Details of expenses not included on the leasing agent’s annual statement. Common expenses include:
- Body corporate fees
- Council rates
- Land tax
- Repairs and maintenance
- Water rates
- New asset purchases – ideally provide a tax invoice showing date of purchase, a description of the asset and amount paid. New assets can include fixtures and fittings such as air conditioners, window coverings and floor coverings.
- Depreciation – it may be beneficial to obtain a quantity surveyor’s report for the property.
If you have purchased a commercial property in the current financial year, you will also need to supply the following information to your accountant:
- Purchase contract
- Settlement statement
- Stamp duty paid on purchase
- Legal fees for purchase
- Loan documents
- Borrowing costs on purchase
If you have sold a commercial property during the financial year, you will need to supply the following information to your accountant in order to calculate the capital gain or loss to include in your tax return:
- Contract of sale
- Settlement statement
- Legal fees for sale
- Property agent commission
Goods and Services Tax (GST):
You will need to register for GST when rental income is expected to exceed $75,000 in a 12 month period. Additionally, the entity which holds the property must hold an Australian Business Number (ABN) in order to register for GST.
Once the entity is registered for GST, it must complete a Business Activity Statement (BAS) each month or quarter.
Self-Managed Superannuation Funds (SMSF):
A common way to own commercial property is through a SMSF. Small business owners will often own the premises their business operates from through their SMSF. However, as SMSFs are subject to the Superannuation Industry Supervision Act (SIS Act), there are specific rules in this legislation which apply to SMSFs:
- Market rate rent must be paid periodically and regularly into the bank account for the SMSF. You must have a commercial lease which is on an arm’s length basis, containing all of the same provisions and conditions as if you were renting the premises from an unrelated landlord.
- A professional and independent valuation of the commercial property must be prepared every three years.
- There are strict rules around borrowing money in SMSFs. Acquisition of property can be financed through a Limited Recourse Borrowing Arrangement “LRBA”. Your financial advisor will need to assist with this process.
If you would like to discuss any of the above or would like assistance with your commercial property accounting and taxation matters, please contact Pilot Partners Chartered Accountants on email@example.com or 07 3023 1300.