We recently built and sold (brand new) a house. The land was purchased 12+ years ago excluding GST and the house was sold excluding GST. The land and house build was held in our own individual names as the intent was to build a PPOR for ourselves (until circumstances changed). However our accountant is saying that we have to pay GST which I am extremely unhappy about. Does this situation sound correct? I don't believe I should be paying GST in this situation however i'd appreciate a second opinion from our resident accountants. Thanks. Al
Did you rent while it was being built? Though not 100% correct is what some investors do: build and don't claim any gst along the way, rent out for over 5 years, then sell the property, as it will not classify as "new residential".. There is a lot more to it than that. But without knowing more about your situation you may be in a position to pay gst.. Swap accountants for a schmuck down the road.. He will not pick up on the gst implications and treat it as gst free on capital account. But the risk will lye with you ultimately and of you get audited and caught by the ato you will have to pay the gst, general interest charges and also penalties.. Significant penalties depending how they deem the transaction and actions - negligent or not This is why I say that invested should get advice from their accountant BEFORE they undertake projects, development or sign purchase contracts.... The initial advice up front could have saved you $$$ in the long run.. Best of luck
Are you (owners) registered for GST? Sounds like new residential premises Sounds like a 'supply' but does it sound like an 'enterprise'? http://www.austlii.edu.au/au/legis/cth/consol_act/antsasta1999402/s9.20.html So it may not be a 'taxable supply' if there is no enterprise. Hope you aren't a builder?
One issue you might have is it appears from the original post that you did not use the premises as your private residential premises https://www.ato.gov.au/Business/Building-and-construction/In-detail/GST/GST-and-property/.
Thanks for the replies. @Terry_w , as individuals we are registered for GST although i'm not sure why as we have a separate company for our projects. This property was to be our PPOR hence why it was left in our individual names.
If you are registered for GST you are going to find it very hard not to be paying GST, on the other hand you might have GST credits. An enterprise can be a one-off thing.
OK a few issues here and some posts are not correct in the approach to addressing the problem. What is the enterprise that has a ABN ?? Is it the same or different form the property matter ?? (eg landscaper is not same enterprise). I don't accept that being registsred for one enterprise means the land is automatically subject to GST. However the case remains it is new residential premises and may also have been a supply made by a enterprise (different one maybe) of a taxable supply. New resi is a taxable supply. One-off events can be caught by the GST trap. I would argue that at some point you made a decision re the PPOR. That point in time may have created a tax issue and you should have obtained advice. I would think it wise to seek a second opinion from a tax adviser who is knowledgeable on property taxes incl GST to confirm or not confirm the other view. Unfortunately a example of why early advice is important. You have lost the opportunity to reduce the GST payable by the margin scheme. The contract should have sold under the margin scheme...If a lawyer was briefed they would have included a default MS clause. You may also not have tax invoices for all the costs which would enable you to reduce the GST by claiming GST on the build etc. Its also likely that the decision to build and sell may have a CGT impact. What was a possible exempt asset is NOT (You must reside in it for three months after build) and the apparent decision to build / sell may be a revenue tax issue rather than a CGT matter. Motive = Profit making. Worth discussion of all the above.
@Paul@PFI , thanks for your detailed reply. I actually tried to PM you however you're not taking messages? At the core of our case against paying GST is that as individuals which this property was built under, we're not conducting an enterprise. We've also got a tax lawyer involved reviewing case law to understand options. Do you mind PM'ing me your number?
No history regarding use of property and how it came to be developed & sold. Therefore no chance of determining if the sale was connected with an enterprise. Therefore cannot determine if it is a taxable supply. Take all your records and consult a competent tax adviser. Preferably a tax lawyer because there is a lot at stake and it could all depend upon what opinion the Commissioner may form from the facts.
