Isolated transactions can also be caught under this umbrella, where the ATO will consider that an enterprise is being carried on if several of the above indicators are present. Given the nature of property transactions we recommend discussing your situation with your advisor prior to proceeding with any property development.
Having established that an enterprise exists, the requirement to register for GST is determined according to GST turnover. The threshold for registration is turnover of $75,000 or more per year.
The type of property involved in the transaction can make a difference to the GST treatment. The most common types of properties are as follows:
New residential premises are those that have not previously been sold as residential premises or have not previously been subject to a long-term lease. Examples include where a developer builds and sells a new home or demolishes existing residences and replaces them with new ones. A new home that has been rented for a period of less than five years since being built can also be classified as a new residential premises. Sales of these new residential premises are subject to GST and credits can be claimed for any related purchases you make (subject to the normal rules on GST credits).
Commercial residential premises include hotels, motels, inns, hostels, boarding houses, caravan parks and camping grounds. Retirement villages are specifically excluded as commercial residential premises for GST purposes. When you sell a commercial residential premises, you're generally liable for GST on the sale price. However, you can claim GST credits for costs in relation to the sale of commercial residential premises, and on the original cost you purchased it for, in specific circumstances.
A sale of commercial premises located in Australia are generally subject to GST. An exemption may be available if sold with a business as a going concern.
Sale of Subdivided or Vacant Land
You may have GST obligations and entitlements if you subdivide and sell land, or sell vacant land with the intention of making a profit and in the course of carrying on a business or as a business or commercial transaction. Even with a one-off transaction, you may still be required to register for GST because your one-off property transaction may have the characteristics of a business transaction. You don't need to be in business for this tax treatment to apply – it's enough that there is a profit motive and the transaction has the character of a business operation or commercial transaction.
Generally, the sale of residential premises that are not new is an input taxed transaction, if the premises is real property to be used predominantly for residential purposes. This means that no GST is payable and input tax credits for acquisitions relating to the sale are not available. However, the exception to this rule is that if you buy property – old or new - with the intention of selling at a profit or developing to sell, you may be considered to be carrying on an enterprise and may therefore be required to register for GST.
The margin scheme is a way of calculating the GST you must pay when you sell the property as part of your business.
In principle, the margin is the GST inclusive sales price, less the original purchase price, where GST is calculated as 1/11th of the margin.
The margin scheme can be used if the sale of the property is taxable, and -
- You purchased the property as an existing residential premises;
- The property was purchased from individuals or entities that were not registered or required to be registered for GST;
- You purchased the property as part of a GST-free going concern, or
- You originally purchased property where the margin scheme was applied to the sale.
If you purchased the property before 1 July 2000, there may also be options to include the sale under the GST margin scheme, however the margin scheme cannot be used if you were charged the full rate of GST when your originally purchased the property.
There are strict guidelines requiring there to be a written agreement between the vendor and the purchaser, agreeing that the margin scheme would apply, as well as the process of claiming GST credits on development and construction costs. We recommend discussing with your advisor prior to proceeding with any property developments and GST lodgements.
From 1 July 2018, there is a new GST withholding requirement for the sale of new residential premises or subdivided land that is potential residential land. This may include sale of new apartments, house and land packages and vacant residential land.
Excluded from withholding requirements are the sale of new commercial residential premises (e.g. hotels and motels), residential premises that have been substantially renovated, land that is currently in use for a commercial purpose and residential land sold to a purchaser registered for GST, for use in their business.
Purchasers will be required to withhold and pay GST directly to the ATO, on or before the settlement date. The rate of withholding is fixed at 1/11th of the contract price, or 7% when the margin scheme applies to the sale. This means the vendor will only ever receive the GST exclusive proceeds from the sale at settlement, with the amount of GST to be credited against the vendors GST liability in the BAS return.
It is important that both sellers and buyers are aware of these rules. Given the nature of these transactions we recommend discussing your situation with your advisor.
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