Voluntarily registering a strata for GST does not add 10% to levies. In fact, for commercial lot owners, it actually works out to be cashflow positive.
This article explains how registering for GST can provide a cash flow advantage to levy payers in commercial strata schemes by allowing them to claim back a portion of their levies, while only resulting in a minimal net increase in costs:
A common misconception among strata managers and owners is that registering a strata company for GST will automatically increase levies by 10%. However, this simply isn’t the case. While GST must be added to levies, the overall increase in out-of-pocket costs for owners or tenants is often minimal. More importantly, GST registration usually provides a significant cash flow advantage to levy payers who are themselves registered for GST.
How GST Registration Benefits Levy Payers
- The Net Increase in Levies is Minimal: If a strata company is not registered for GST, it cannot claim back the GST it pays on expenses. This means levies must be set at a level that covers the full cost of these GST-inclusive expenses. By registering for GST, the strata company can claim back the GST on its expenses, reducing the amount needed from owners. While 10% GST is then added to the adjusted levies, the net effect is usually a small increase, not a full 10% jump.
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Owners and Tenants Can Claim GST Credits on Levies: When a strata company is registered for GST, it must charge 10% GST on its levies. However, commercial property owners and tenants who are registered for GST can claim back 1/11th of their levies as a GST credit in their own Business Activity Statements (BAS). This means that, in most cases, the actual cost of levies to these owners or tenants is lower than it appears.
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Ongoing Cash Flow Benefits: The ability to claim back 1/11th of levies in their BAS provides commercial owners and tenants with an ongoing cash flow advantage. Instead of absorbing GST as a hidden cost within levies, GST-registered owners and tenants effectively receive a refund of the tax component. For businesses managing their cash flow carefully, this can make a real difference over time.
A Worked Example:
Let’s compare a small commercial strata scheme with and without GST registration, assuming annual expenses of $110,000 (including $10,000 GST).
When GST Registration is Worth Considering
While GST registration is generally beneficial for small commercial strata companies, it’s still important to consider the mix of owners and tenants in the scheme. If the majority of levy payers are GST-registered businesses, the advantages of GST registration are clear. However, if many levy payers are not registered for GST (e.g., individuals holding commercial property as an investment), the benefit may be less pronounced.
Seeking professional advice is always recommended before making a decision.
Quick Takes:
- GST registration allows commercial strata companies to claim back GST on expenses, reducing net levy costs.
- Owners and tenants registered for GST can claim 1/11th of their levies as a GST credit, improving cash flow.
- Levies do not simply increase by 10%; the net effect is usually minimal.
- Professional advice is recommended to assess whether GST registration is beneficial for a particular scheme.
For more information, please contact the Ascend office via your strata manager.
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The above content is of a general nature and should not be relied upon as professional advice. Ascend encourages readers to seek advice from suitably qualified professionals in relation to their specific circumstances and not to rely solely on the information provided above. Please contact our office for more information.
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