Development - including GST.....

Hi

What are the basics one would need to factor for GST re a development
ie: build 4 dwellings
Hold x 3, presale x 1.
Can one pay the GST based on 1 dwelling...

How does this all work and what does it entail.....

 

Hi

It will depend on your situation so best bet is to talk to your accountant

If the property has an existing residential house on it (and that must currently be habitable) then generally you won’t pay GST when you purchase the property. This then means you can use the margin scheme when you sell. So there is no GST refund or credit given when you buy the property but you get a reduction in the amount subject to GST when it is sold.

GST will be applicable on the sale of the residential property as it will be “new residential property” So yes when you sell you will be liable for GST but to reduce this you want to use the margin scheme. The use of the margin scheme needs to be a clause in the sale contract - at least in QLD it is written in specifically but different states may have a tick box to elect this to apply.


The margin scheme works by reducing your gross sale price by the price you paid for the purchase of the property. So using some numbers from your example:


Sale price $2,100,000

Less Purchase Price $725,000

Margin for GST purposes $1,375,000


You would pay GST at 1/11 of this amount = $125,000


You are still entitled to claim back the GST on the build and other relevant developments costs. I am not quite sure how you have accounted for GST on all the costs. I do see you have a GST allowance for the purchase of the land but I can’t see anything for GST on the build costs unless you have just shown these as net already?

@johnnyv

 

Good summary but only the gst on the one being sold might be refundable....A tax plan would be my suggestion. Over claim of gst can result in penalties

 

Note that the government is looking at having developers have to remit GST at the time of sale of a lot.

Not sure how they are going to calculate what needs to be withheld at this stage. Could be bad for cashflow.

 

Interesting.. @Paul@PFI

I'm in a similar situation (though x3 not 4)- if my intiial intentions were to sell all 3, but then decide to keep 2 are you saying I may be liable to to pay more GST - perhaps capping at what it would be for 3?