Gst on Primary Production land sale with residence

Discussion in 'Accounting & Tax' started by Kerin67, 17th Apr, 2020.

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  1. Kerin67

    Kerin67 New Member

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    Can I ask a question regarding GST on a property sale please?
    It is an unusual situation. The property in question is an old 1860's school in SA, on 2 acres, that my elderly parents bought in 2000. They lived in the building for seventeen years, with power connected to the block, and water provided and paid for through their immediate neighbour's supply, with no sewerage or plumbing, just irrigation and garden hoses. The property is zoned Primary Production, but assessed on their Council Rates as having a residence.
    As the building became unsafe and delapidated over the years, I had to move them into a rental unit in 2017, to be closer to facilities. They are still paying rates, however, water and power have been disconnected.
    The immediate farmer neighbour has offered to buy the property, with the view to use the school building as shelter for his sheep. As he owns the adjacent property surrounding the block, he will eventually subdivide, demolish the school and build a new residence on it.
    So basically, we are selling for the land value. He has offered $77,000, which my parents are happy to accept, taking into account that it will cost approximately $30,000 to demolish and clean up the block.
    Before we accept his offer, as a private sale, I need to know if GST will be payable on the sale, that we would then have to apply on top of the purchase price, so my parents don't lose $7000 of the sale price, as it was their primary place of residence for seventeen years.
    According to the ATO website, GST is payable for sale of land by the vendor.
    The neighbour has finance available to fund the purchase.
    He also has a conveyancer ready who is a family friend.
    Can I ask him to pay for and use his conveyancer to draw up the contract and source the Title documents and paperwork required, on top of the purchase price as part of the negotiations, as we have yet to agree to his offer?
    I would really appreciate your consideration as I am in Queensland and my parents are in SA and relying on me to sell the property to the neighbour, without an agent. I had three agent appraisals done, when I was over in February. They resulted in approximate valuations of $100,000, minus demolition costs, ultimately not worthwhile for us.
    Thank you so much for your time.
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Your parents should be seeking their own legal advice - not from a conveyancer.

    Are they registered for GST?
     
  3. Kerin67

    Kerin67 New Member

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    Hi Terry, thanks for your quick response. No they are not and they are pensioners.
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    They can't charge GST unless they are registered. So the next question would be if they are required to be registered. The turn over amount is $75,000 which is close to the amount offered. If the sale is on capital account generally the sale of a property would not be included in turn over.

    But there is also the exemption for farming land under section 38-480 of the GST Act - which may not apply.
     
  5. Kerin67

    Kerin67 New Member

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    Thanks again Terry. May I ask what a capital account is? Also, my parents never used the property for primary production whilst they resided there, however, the neighbour (buyer) is a farmer. I will check out section 38-480 of the GST act. I will be seeking a solicitor for my parents, and consult with them on my parent's behalf. You are most helpful, I appreciate this.
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    capital account is where you hold the property for capital gains and not for revenue - which sounds like the case.
     
  7. Kerin67

    Kerin67 New Member

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    That's correct Terry, no Capital Gains or land tax as far as my research goes should be applied, I believe. As I am currently researching a solicitor for this property sale for my parent's situation, I see that you are a lawyer and tax adviser and a business member of this site. Do you have a website and are you currently fully accredited and operating, even if online under the current circumstances?
     
  8. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Capital account is only an issue to determine if there is a enterprise. And for CGT. They key issue here is that the property use does not indicate an enterprise as it has been previously been used for private purposes before beig unused and there is no apparent profit making intention. Hence GST wont apply. If these issues arent correct then seek more specific advice.

    The GST issue is not based on the proposed use. But that of the vendor. And GST doesnt increase the sale price. It is part of the sale proceeds

    The 2Acres (old school) likely means that the whole premises are potentially CGT exempt. But if the parents ever used the land for primary production there my be a tax issue (CGT) as the main residence exemption may not be 100% exempt