GST liability on property bought as a PPOR if redeveloped

hi there

Asking on behalf of a friend

He has bought a property a year back for his own use as PPOR and moved in

Now luckily the area is seeing a lot of growth and the surrounding property is also being developed

So in case he decides to develop his house into 3 townhouses, will he be liable to pay GST on the entire sale amount ?
The tentative sale amount for the 3 houses will be 2.1m
He will be developing it on his own and not selling off the land to a builder

Cheers

 

GST applies to the first sale of new residential property where the owner is registered or required to be registered and is conducting an enterprise.

but there may be ways to decrease or eliminate it.

He should seek specific advice.

 

He should look at the margin scheme and potentially selling the home he lives in.

A couple of options there. Plan ahead.

 

Just to clarify further, He did not select the margin scheme and bought the property in his own personal name

So what are the options available to him ?

Cheers

 

To get tax advice?1

 

Considering the difference in tax between doing this wrong and doing it tax effectively could amount to several hundred thousand dollars, I strongly recommend paying for quality tax and legal advice up front.

My brother in law did a similar project, did not get good advice and ended up with a $300,000 tax debt that could have been significantly reduced if he had paid for good legal and tax advice before he started.

 

With some good advice he will be able to work through the scenarios and make an informed decision on:
1. selling it as is (CG and GS tax free)
2. selling it with DA permits (probably CG and GS tax free)
3. developing himself and holding for more than 5 years (CG tax and GS tax free)
4. developing himself and holding for less than 5yrs (CG tax or income tax and GS tax)

 

There is no question of him doing it without consulting a good tax adviser

But before engaging him, I also suggested that he should also know the basic rules, so that he can have a meaningful discussion with the adviser

Any recommendations in Melbourne?

Cheers

 

@Westminster sums up it quite nicely.

Only point i would make even if he held for 5 years it doesnt necessarily mean it would be on cgt account. If the commercial reasons were to avoid paying gst on new residential premises but he intended to sell at the beginning (albeit 5 years later) it could strongly suggest on revenue account.

 

@MikeLivingTheDream is based in Melbourne

 

www.propertytaxsolutions.com.au

 

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