Hi Property Experts !! Am i going to be liable to pay the GST component if I hired a builder to build a house initially with the intention of leasing it out, however now I plan to sell it off? Ritzz
The sale of a new residential premises is liable to GST on the sale. If you originally built the home with the intention of leasing for residential rent, and you sell it, you have a change of intention. Getting the exact point in time your intention changes is not yet clear. When your intention changes the previous GST credits that could not be claimed can now be claimed as a gst credit. You might be able to mitigate the gst on sale through using the margin scheme. If you rented it for over 5 years the house will no longer be “new” for gst purposes and no gst will apply. If the house was a significant, but still cosmetic renovation, to the house it might not be new residential premises - so gst might not apply. Lots to think about and we have not talked about other taxes yet.
Not always. GST 2003/3 makes it clear at paragraph 11 " The sale of a person's private residential premises will not be subject to GST, even if the premises are new residential premises, unless the sale is in the course or furtherance of that person's enterprise and the person is registered or required to be registered for GST."
Also be careful. Some new residential premises are not subject to GST on sale. Goods and Services Tax Ruling GSTR 2001/7 explains the Tax Office view on the operation of section 188-25 of the GST Act. Paragraphs 31 and 32 of GSTR 2001/7 state 31. The GST Act does not define the term 'capital assets'. Generally, the term 'capital assets' refers to those assets that make up 'the profit yielding subject' of an enterprise. They are often referred to as 'structural assets' and may be described as 'the business entity, structure or organisation set up or established for the earning of profits'. 32. 'Capital assets' can include tangible assets such as your factory, shop or office, your land on which they stand, fixtures and fittings, plant, furniture, machinery and motor vehicles that are retained by you to produce income. 'Capital assets' can also include intangible assets, such as your goodwill. In some cases a property had been held by the taxpayer to produce rental income. Therefore, the property had been the profit yielding subject of their leasing enterprise. As such, the property had been a capital asset. As the sale of the property represented the transfer of ownership of a capital asset, the proceeds from the sale would be excluded from the calculation of projected annual turnover. Therefore, if their current and projected annual turnover from their leasing enterprise would be nil, they would not be required to be registered for GST. As they are neither registered, nor required to be registered for GST, not all the conditions that would make the sale of the property a taxable supply would be satisfied. Therefore the sale of the new residential property would not be subject to GST. Its very important to look at all the definitions in the GST act as sometimes it falls out of the definitions in the GST act for GST to apply even though it is new residential premises. Just search the private binding ruling register and you will find hundreds of examples. This was an entire semester in my Masters of Tax program. GST is actually highly complex.
Playing devils advocate here (I have no idea about these things), but could that be read/applied as being that building the house to sell is an enterprise to begin with and if you are expecting to make over $75k on the proceeds then registering for GST would be required?
I'm with Mike here - There are many issues that need to be considered and whether an enterprise exists will be the start. Assumptions that all new residential property is subject to GST when first sold is actually a flawed assumption many tax advisers can leap to. That can be dangerous as tax advisers arent the final determination of tax liability. Instead a property savvy tax adviser may make diligent review of the circumstances and should first consider if GST may apply. Often it will. Not always. That position can be subjective however and the Commr and courts may be final word on this issue. Hence a binding private ruling may also be warranted. The additional cost of that may likely be far less than the net GST however that also needs consideration. Use of the margin scheme and claims for GST incurred can also be less than the process of seeking a ruling. So take the path of least resistance / cost. The warning that needs to be given is that all this should be explored well before the property is listed for sale. Ideally prior to commencement so that correct records are maintained (costs incl and excl of GST) for a variety of purposes incl taxes, QS reports, reportable construction payments etc. And its worth considering what the impact of renting the premises may have on GST tax credits (if they are to be claimed and when they are to be claimed) and even the impact on a potential buyer if they may be an investor. They may lose entitlement in some instances to depreciation v's if it was sold promptly. REA input may be needed...Danger too may be if an OTP sale is pursued that the contract MUST address GST
Terry correct. See PBR for a situation where that occurred RBA Content NOTE : the facts of each case are different and the definition of an adventure or concern in the nature of trade is VERY important for these once off type activities But as @Paul@PFI has correctly even a private ruling which would cost a grand or two may well save you thousands in GST and provide certainty. My initial impressions are that you may well not have to pay GST BUT Evidence will be the key and facts VERY IMPORTANT. you are going to have to argue with the ATO that GST is applicable and it is your responsibility to gather all the facts to argue otherwise.
Thanks heaps pc's for the insight however just to clarify im not a property developer or builder. I just engaged a local builder to build it for the purpose of rent however after finishing building a friend of mine wanted to buy it. I dont run a business and have never had to register for gst and believe i cant claim any gst credits since i didnt build it as part of any enterprise
GST act requires one to look at whether it was in the course or furtherance of an enterprise. This can apply to isolated transactions as well. ATO is going to argue GST you are going to have to argue no GST.
