GST on a build and hold residential investment property

Hi All

I am a builder/developer just starting out and am currently in the process of developing a dual occupancy dwelling, the dwelling will not be sold and will be rented out.
during the next 12 months I will incur many cost for the development/construction which mostly will include GST. Approx 500k build so say 50k of that is GST
The property will not create any income until completion once rented. And still will not have GST as this is residential rent.
How is the 50k GST treated?
Can i claim the GST ?
will this be paid back by the ATO or just sit with the ATO as a credit?

Note the property is owned by a trust.

 

I think you are mistaken. A trust can’t own a property.

Is the owner registered for GST?

I would imagine, given the details provided, the GST would be added to the capital base, however, specific advice would be required.

Tony

 

For tax purposes a trust is considered an entity - this is why people think it can own a property.

dernii you wouldn't be able to claim the GST.

 

Even though you're a builder/developer, building to rent you won't be able to claim GST.
Building to sell though, trading as a business, you'll be able to claim GST but will also have to account for it on sale of the property.

GST takes a nice chunk of your development profits :/

 

Yes, Sorry my mistake, the property will be owned by a company and held in a trust.

 

Yes GST is a chunk, As long as we are aware of it its ok though!

So If the company is in the business of Property development, For this exercise..Say to develop build and then on-sell the property, then the GST can be credited.
If the property is then retained and not sold for whatever reason, then at some stage the GST credits will need to be paid to the ATO, Is there a point in time when this takes place?
Is GST payable on the original cost of the development or will the GST be determined by the end value of the property.

Example: GST claimable at project completion = 50k
However, After 5 years the total value of property = 900k
Will the GST payable be 90k or 50k?

 

If you are building to sell then you can claim GST credits on the input costs of construction. You also have to remit GST on the eventual sales price (not the "value").

If you then decide to hold and rent out (for a minimum of 5 years) then you do not have to charge GST in the sales price if selling after this time (as the property is not considered to be "new" anymore) but you would have to hand back the GST credits you claimed on the construction.

 

Yeah, then you are hit with CGT

 

Not cgt but income tax.

 

The developer toolkit explains most of the tax concepts many have mentioned. Its probably a good guide prior to advice so you can get your head around the basic concepts and issues.

I see no reason for the trust to have an ABN or be registered for GST. However the trust must comply with reportable payments to avoid penalties

If the build was undertaken by a different entity as constructor and then sold to the trust then the building entity may claim GST but would need to charge GST to the trust on completion.

 

Thanks to ALL, very generous with your time!

At a quick glance that Developer toolkit looks great, appreciate it! I will continue with my research

Cheers

 

If developing to sell, remember the GST margin scheme.

 

Remembering it is just part. First step is determining if its available. And the contract complies.

There can be merits of NOT using the margin scheme too... I just discussed that with a client who was selling commercial use land to another developer. Developer REFUSED to buy it if the MS was used OR offered a lo ball price. They agreed a deal that worked for both..Higher price than under the MS but with full tax credits available. The buyer could claim tax credits. Vendors profit was higher than under MS and with higher GST meant it was around same net value. REA agree to trim fee based on the changes too. Worked out OK. That where good REAs (commercial site) can help to sell a deal. I advised vendor and the REA was kept in the loop and got the issue and they worked together.

Very common with commercial ventures.