Partition and GST

Discussion in 'Development' started by Bahumbug, 10th Mar, 2020.

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  1. Bahumbug

    Bahumbug New Member

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    Hi all,

    I own a block with my brother. If we subdivide and build 2 townhouses and then partition for one person to live in and one person to rent out, will there be GST to be paid on the property to be rented out?

    Thanks
     
  2. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Not as far as I know #notanaccountant

    Only GST if you sell within 5yrs.

    There might be CGT and stamp duty on the transfer though
     
  3. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    GST only occurs on a supply. There may be a supply of the land (50% of each) but as there doesnt appear to be an enterprise it may not be subject to GST. The lack of enterprise is evident by the intention to each hold and not resell. There may be a CGT impact of course as each of you will exchange 50% to the other.

    However there could be a later sale of new residential premises if either lot is sold and GST could later apply (remember land is one supply and new residential premises is different). The concept of enterprise could be enlivend at that time if the apparent purpose of the development was to construct and sell for a isolated profit making venture. Provided each party demonstrates an intention to hold for their private purposes then the ownership should be on capital account and GST is not likely to be a factor.
     
  4. Bahumbug

    Bahumbug New Member

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    Thank you for the replies, really appreciated. I just wanted to clarify the example in this article I've just read:

    Partitioning real property - what is it and what are the tax implications? - Economos

    Specifically this example:

    Broadly, if a participant is seeking to construct a dwelling to act as their main residence, it will be considered private or domestic and therefore, they will not be required to be registered for GST (and if they are registered for required to be registered for other reasons, for example, they are a sole trader, then these activities would fall outside the scope of their enterprise).

    However, if a participant is seeking to rent out their dwelling, they will be carrying on an enterprise of residential leasing and therefore, they will be required to be registered if they will have turnover of more than $75,000.

    Returning to the example above, if Annabelle intended to use Lot A as her main residence and William wanted to rent out Lot B, then as the value of William’s supply of 50% of Lot A to Annabelle on partition will exceed the $75,000 registration threshold, William will be subject to GST on the partial disposal of new residential premises.


    Is this correct? It doesn't sound like the people in this example are an enterprise either but still required to pay GST?
     
  5. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    This is an appalling way to address what YOUR tax position is. The ATO would look at all of the facts and circumstances from start to end. What seems like is not a enterprise may later be evident. This is quite wrong as rent is input taxed and doesnt count as turnover by one of the owners.
    You are confusing a partition of land with a main residence. Land exists at the time of partition and no dwelling exists. Intended use of the land as part of a construction project should address the requirements of what a enterprise is (MT 2006/1) eg Build to occupy is private and a CGT asset. Build to rent is input taxed and a CGT asset. Build to sell is likely an enterprise and revenue account.

    In some instances if A & B partition and A has intent to live in the new dwelling and B intends to sell there could be a GST issue for the partition of each lot and not just B's. The enterprise is being conducted by A & B not by either alone. Then for the supply of new residential dwelling a separate test applies to each of A & B
     
  6. Terry_w

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

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    Just make sure it is not a taxable supply.
     
  7. Terry_w

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

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    Only GST if there is a taxable supply of new property. A transfer could be a supply - without selling.
     
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