GST on sale of subdivided land

Land with an existing house (vacant)
Plan to subdivide to 3 lots and sell one to a close relative, will get a valuation down (for the transfer). If sell at market value, most likely will be a loss, or a little bit gain. Then we will construct together, my lot 1 and 2 will be rented out, my relative will live at lot 3 property.

A small business owner with quarterly BAS GST on sale around 50k. The business is nothing to do with property.

Do I need to pay GST on sale of the land to my relative? Thank you.

 

Probably

 

but my intention was not to make a profit and my business has nothing to do property development?

And any strategies to minimise GST? Thank you very much!

 

New residential land, and you are registered for GST and looks like conducting an enterprise

yes there are strategies to minimise GST>

 

Thanks Terry, can you please elaborate more about the strategies? One I can think of is margin scheme, assuming original purchase was 990k, subdivide onto 3, each would be 330k, and the market value is 400k, then 400k-330k=70k/10= gst 7k? Is it right?

 

If you are creating new land by subdivision, then this constitutes supply which is subject to GST.

However, for GST to be payable, you must be carrying on an enterprise. When I have subdivided previously, it was in a personal name and I argue that it was not an enterprise (not registered for GST, I was living in the property, no ongoing business of subdividing land).

If this land is owned in a business name that is registered for GST, that is going to be tricky. Accountant advice and a private tax ruling is in order ($1500?).

Which entity is the property held in?

 

Yes you just have to make sure you are not conducting an enterprise. But doing 3 and selling one immediately means it is probably an enterprise.

You need to seek tax advice

 

If you are required to treat the supply as a taxable supply then the margin scheme may be available (?) and may mean very little GST is paid. Basic tax advice can often save a fortune !!

 

In my personal name, I use develop hold and rent strategy, or buy and renr. Have never sold a property yet.

 

Its quite possible that you dont meet the test of an enterprise (Ruling MT 2006/1) if your plans are not to sell but you are now doing this merely for personal (family) reasons only. eg You wouldnt sell to me but are happy to assist a relative. A mere realisation of a CGT asset rather than as part of an enterprise. However if you cant afford to build on all three so want to reduce the land and part of the plans was to sell down some of the surplus land then that could get complex and may require a private ruling as it may be seen that the sale IS part of the elements of an enterprise.

In the OP you said "we will construct together"....What does that mean ? I suspect you refer to the issue that at same time you may both build.

The ABN for the sole trader activity does not relate to the property activity (different enterprises - The property one is input taxed if the intent is to generate future rental income). However its a good reason why sole traders have a higher asset protection risk. If your small business had a claim the property could be at risk.

 

Thanks Paul.

What I mean was I will construct lot 1 and 2, my relative will construct lot 3. We will use the same builder but have independent finances and contracts. My small business is in a company structure and I'm the sole director.

Just a side point, what's the typical cost for this type of gst advice? And how long would it take ?

And tax professionals are all specialised in various types of tax right?

 

I dont provide fee or cost estimates on PC but happily accept calls and offer a no-obligation discussion to assist those sorts of questions.

Not all tax professionals are property savvy. They should be....Some know loads about rentals etc but have never seen developer issues. And some just dont do enough in property to see the multitude of different situations.

You may also find our developer toolkit helpful although it may be beyond your issues since your activity doesnt seem to be development. Just building some CGT assets to rent out.

 

Do yourself a favour and contact @Paul@PFI or another accountant with expert property knowledge.
Paying for the right information upfront in so many cases will save you (usually the savings is a whole lot more than the cost of the accountant).

 

Don't forget that your buyer(s) will have to withold GST on the purchase price too and you have to claim back from ATO.

 

anyone who tries to do their own conveyancing would be a fool with these changes.

 

You dont actually claim it back. You just complete the normal BAS and the auto mystically identify the withholding to credit against the BAS (which probably has a sum payable). Any refund may issue IF you have recorded EFT details with the ATO.

Important for the taxpayer selling the land / building that they follow up and lodge promptly. If they think the ATO will refund the withholding without a BAS they will be disappointed

I have yet to see that part of the process and question if I will even know the amount withheld. Resolving issues will be fun.

I have posted a new thread on this process and how I believe it will add to costs :
GST Withholding on Property after 1 July 2018