Questions about GST on new property

Hi

I have researched on this online but there doesnt seem to be a clear answer.

My questions are that exactly which costs can be subtracted from the total sale price of a new property before GST is calculated?

For example lets say you purchase a property for 1.5 Mil, then you have stamp duty of 50k, legal settlement fees of 10k (all assumed).

Holding costs of 100k while the property is being rebuilt, lets say there was an old house on it which was demolished and now you have put a new house on it.

Lets say your build costs are about 1 Mil as well. I understand while you are building, you are able to claim 10% of all your "GST inclusive" costs via BAS statements.

Now lets say you sell the property for 2.5 Mil and purchaser withholds about 250k at the time of selling as GST.

By this time, assuming all the build costs of 1 Mil were GST inclusive, you would have already claimed back about 100k in GST through BAS statements while the place was being built.

You now then have to submit the non-GST costs to ATO to minus them from your total sale price in order to then finalize all GST and pay you the difference between 100k (The GST you already claimed through the build) and whatever GST you should have realistically paid given you had a number of costs that were not GST inclusive.

Now questions are, exactly what costs can then be minused from the total sale price above as non GST inclusive to then be able to take it off the final sale price and calculate the final GST?

My assumption is the first one will be the purchase price plus stamp duty right?

Will holding costs (which arnt GST inclusive) be able to be minused? If not why not? in other words whats the difference between being able to claim the price of land but not the costs to hold the said land even though they both dont have a GST component?

If you had incurred other costs, lets say for example seeking easement from neighboring properties, that dont include GST can they be deducted from the final price for GST purposes?

Also whats the process of claiming the refund once the sale has taken place and how long does ATO take to give that refund?

A detailed and informed answer would be much appreciated.

 

Have a look at the margin scheme and talk to your accountant & solicitor before buying a development site.

 

Our developer toolkit explains a little.

The claiming of GST on costs and the amount of GST on sale is influenced by many things. In its simplest, the GST on build costs may need to be supported by a marketing campaign and demonstrated intention to sell. Just because you are building does not mean any or all the GST is creditable. I usually discourage clients from registration for GST too soon as refund BAS are a high audit concern and its not unusual for these to be reviewed and sent "the questionaire" to determine the nature of the enterprise. There are a variety of factors that determine when the GST refund occurs or when it should or could be claimed. eg Not advising the ATO of bank details !! Late lodging the BAS or making a error on the form to delay processing.

eg If the land was acquired from a developer you may be prohibited from using the margin scheme. And if the build costs are $1m then there WILL NOT be $100K of GST. It may be as high as $90,909. Many costs incurred with a dev exclude GST. The calculation of profit will use the EX-GST costs and the sale price reduced by the GST on the sale. The withholding of GST at sale also affects when you get all the sale proceeds. Some process quickly, others dont.

Stamp duty does NOT reduce GST payable. The margin scheme needs to be understood.

 

The most common way to calculate the margin is to subtract the consideration for the acquisition (cost price) from the consideration for the supply (sale price). The margin cannot be negative.

- The sale price includes the price specified in the contract plus any settlement adjustments (e.g., rates, land tax etc)

- The cost price includes the amount paid by the vendor for the purchase of the property plus any settlement adjustments. Stamp duty paid on acquisition and development costs cannot be included.

 

Depends when the property/land was acquired too. Pre 1/7/2000 land can use a different (valuation) method for the GST calc to really achieve major income tax + GST savings. Pre-CGT land is even sweeter and the valuation date in both cases may be very recent if the pre-CGT property was held for private use until the commencement of a enterprise to develop.

And can be a way to clearly get a CGT exemption and / or concession.

People fear pre-CGT sales but it can be a lucrative strategy and genuinely avoids loads of tax

 

I am not sure if you are aware but in almost all cases that I am aware of when you sell a "brand new" property, the purchaser will withhold 10% and the onus is on the vendor to then argue whatever it is they want to argue.

Having said that, lets assume the purpose of the enterprise was profit making, it was registered for GST and refunded from get go through BAS statements.

What Non-GST inclusive costs can be deducted from the total sell price?

Can holding costs be one of them?

Thank you

 

If the margin scheme has been applied it is 7%

The amount is remitted to the ato not held by the purchaser and the seller then claims it as a credit against their gst liability.

 

As Paul mentioned on selling the paperwork should have an option if you are applying the Margin Scheme or not. I have seen/used this paperwork in WA and assume there is an equivalent in all states.

If you are eligible for the margin scheme then you tick that and 7% is sent to ATO at settlement instead of the full sales proceeds being given to the Seller and them sending to the ATO - far too many people didn't and ran away with the money so the ATO now puts the onus on the settlement process.

If you are ineligible for the margin scheme then you tick full GST and 10% is sent to ATO.

You then finalise all your GST matters and reconcile with the ATO and there will either be a small debit or credit.

PS I'm not an accountant so I won't speak to what you can claim, this is just how it has been handled for a project I did.

 

Yes thats pretty much the system. The lawyers and conveyancers will do their back and forwards to ensure that the relevant docs are completed.

We are seeing more instances where a sale (often a small development or simple land etc) is being held up when the purchasers solicitor raises concerns for "new residential premises" where GST is not mentioned in the contract. The new process bring two steps into the process to reduce avoidance, fraud and general ignorance of tax law through requiring correct tax treatment to be reflected in the contract and then the process for withholding follows.

In the cases I have seen with the vendor being asked questions I have seen persons required to be registered and also sales where the vendor is not conducting a enterprise. It does add to complexity and put brakes on the sales process when vendors suddenly need urgent tax advice.