Say I build 6 units then plan to sell them as new. I understand gst is payable by the buyer on a new but not a second hand one. If I sell my units after renting them out for 6 months, can I sell them gst free? Also, when sites like pricefinder give a sale price for a new unit sold, is the price inclusive of gst?
No is the simple answer. GST applies to first sale of NEW residential premises. New means many things but lets adopt a simple view of AT LEAST 5 yaers after construction but it can be longer. The correct way to view GST is its inevitable....But there are strategies you can use to substantially reduce GST. But it takes planning. 1. You can sell using the margin scheme if you are able and you choose to sell them that way in the contracts. This can sometimes halve the GST from 9.09% (1/11th) of the selling price to 5%. Depends what the land was bought for or what its value was when you start the dev. 2. You can claim the GST on construction IF you have contracts for sale of all 6. This reduces your cost of construction..Tax office gives that GST back to offset what you owe them. .Adds to profit and offsets the GST you pay on the sales...So the 9.09% GST was 5% and now may be 2%. 3. You could chosoe to hold them for 5+ years THEN sell...But you lose the tax credit in 2. But no GST on the sale... All for what 2-3%....Hmmm. All explained in the developer toolkit. Important message is get a tax plan for the dev and plan taxes into it. And from July next year the GST issue will be enforced by the buyer who will be responsible for taking the GST from the sale and giving it to the ATO...Not the developer. . So you cant ignore the issue. To the pricefinder question - The price may include GST if there is GST. If its existing old property then there wont be any. If its a new build the GST could be anwhere between 0% and 9.09% of the sale price. Its irrelevant. GST is NOT added to market prices. Its part of the agreed price.
But that all depends on the market, doesn't it? If you build those units in Sydney in 2012 and sold them 5 years later in 2017, it would be a lot more than 2-3%. Conversely, if you built those units in Perth in 2012 and sold them this year you would most likely be looking at a substantial loss.
Thats a separate issue. For those that plan to hold then GST doesnt even factor into the game. BUT I always encourage you to keep records for GST just in case you change your mind. It happens. Yes, If you want to hold for growth and its a bit speculative and I dont think anyone would be brave enough to take a punt on Sydney prices in 5, 6 etc years....If you do hold some it doesnt automatically mean that the growth will be a CGT profit I'm afraid unless the intention all along was to hold them all. When you mix profit making into the mix the ATO consider its not a CGT asset. I have a few clients who have done devs specifically where they have zero intent to sell and we have carefully recorded that intention to ensure if any profit occurs in a future year that they minimise tax. One of the biggest problems with those who chase the 5 years is they later change their mind. Or get it really wrong. For example you list the properties for sale after 4 years 8 months.....You can be left with GST on the sales, no margin scheme and no tax credits and be better / worse off as GST applies to the lower / higher selling price. Options: 1. Complete and sell. Reinvest or repeat (Some pay down personal debt.) Profit as Ordinary income, GST on sales, Claim GST on costs, Margin scheme ? 2. Hold all and no intention to sell No tax on profit. Held as a CGT asset. No GST issues BUT records are needed for GST inclusive costs. Biggest danger is changing your mind within 5.5 years. 3. Sell some. Often driven by lending issues. Hold balance. Profit is ordinary income generally. Those you hold may not always even become a CGT asset. Complex issues arise and tax advice is really recommended. Many traps in this area.
This is true. My brother in law did this with 4 townhouses on the sunshine coast. He didn't keep the GST records because he was sure he was going to keep them but sold them after 3 years. He didn't even use the margin scheme! GST was a lot.
I couldn't say. My understanding is that proper records were not kept or were not passed on to the accountant. Either way, he paid full GST at sale with no claim for the GST expended during construction.
@Perthguy - if I got a tax bill like that, I'd be checking all of my emails for receipts, bank statements for payments and following up everyone.
You wouldn't get a tax bill like that: 1) you would keep proper records 2) you would get proper advice before selling so that you could sell using the margin scheme 3) you would work with your accountant to make sure your tax was being prepared correctly
If you dont sell with GST you are in a world of hurt. No margin scheme. No GST on build and maybe penalties. I no longer accept engagement for those people as its too common
How is GST treated if you sell your PPOR after 3 years from building, is it exempt being a PPOR? What about if the Main Residence Exemption Rule is applied on a new build? Regards, Arc
Generally if the main residence rules apply you are not in an enterprise and get usually wouldn't apply
A property newly constructed for resale can not be a main residence by the builder / owner. TD 1992/135 For GST purposes the enterprise that sells can be a human but if they think the main residence rule escapes GST its not correct. GST applies to first sale of all new residential premises and "new" generally means within at least 5 years. Many people think that if hubby and wife knock down their old house and build a duplex or some townhouses and sell for profit that they are exempted as they arent in business and the property is CGT free. A enterprise is defined by MT 2006/1 and a business purpose isnt needed. A enterprise may be a series of activities. A enterprise and income tax both do not require repetition where a business may have that feature. But lets say hubby and wife knock down their old house, rebuild and occupy the new house for a period of time they may escape the issues as their activities are private.
Sorry to bump old thread but wanted to elaborate on this further. If I build a new residential premises, make it my main residence but sell it within 5 years I'll be exempt from GST and CGT as long as my intention was to build the house and live in it, not as a profit making scheme?
If you build your home and live in it - you will not incur GST or CGT. The family home is exempt from that. And yes your comments regarding intention is a massive issue. The exemption is so generous it is often attempted to be abused.
Hmmm not sure I would state that as being conclusive. TD 92/135 explains a exception. It says a home isnt always a CGT asset. Hence no main residence exemption. Take care that the simple example does not mean it only applies to "builders". Then there is the application of enterprise which doesnt disregard a home as such either.
