Selling new developed constructed IP 12 months later - gst implications?

if 1 has finally done a splitter block on their IP after they have held it for 5-6yrs, and retained the new dwelling for intended long term investment purposes. But 12+ months later after development finished unexpectedly needs to sell for financial reasons...

Is it the ato's view that developments / splitter blocks that are done should be held for 5 yrs if plan to hold onto and if shorter than that then development / constructions should b done as a business with gst factored in...?

Will this create issues with ato. (Splitter was done privately/ no gst) (I recall reading something like this in an api article last yr)...

Bank lending criteria's have tightened and other separate IP had been purchased & sitting for 3+ yrs finally ready for development and long term hold by the investor / no plans to presale and plan to hold all 4 planned THouses. But dont have own funds / or lending power to do the development unless get funds by selling other IP (splitter done 12 months ago).

My Understanding is being able to display and justify intentions at the times will b ok or will ato be more un forgiving......

 

Its not the ATO view but the law. But splitting the block you are creating 2 new properties. GST will apply to the sale of new property if you are conducting an enterprise.

 

If you rent the newly built house for 5 years after it was built it will no longer be a new house for gst purposes.

If you sell it 12 months after renting it you have a "change of use" and gst will apply to the sale. The gst will be reduced by a small amount for the value of the rent but I typically find the impact of the rent pro-rata is small.

 

I would strongly encourage tax advice from a property focussed adviser. Even the seemingly simple "5 year rental rule" Ross mentioned comes with a lot of conditions which if not met can still lead to GST on the sale AND no input tax credits on the construct. Assuming its a "must sell"situation then its likely GST will apply and its important that the GST be reduced. I would be considering IF the sale can be made under the margin scheme as this can reduce the GST. Then the GST on build costs may further reduce this.

The date when the separate land was split from the IP will be important and the land may need valuation based on that time. There are minor ways to reduce the GST and tax impacts but a sale that is GST free would be seemingly difficult.

 

So I guess the terminology of conducting an enterprise can be interpreted in different ways....

My intentions and investment goals are for development retain and hold. Not to develop and sell.

But I get the feeling the ato will just decide it's an enterprise.

I've looked up ato - gst registration and carrying on an enterprise....

I think I'll need my accountants advice

 

Thanks for the insight

 

If you can find evidence to support your initial intention to subdivide, develop and hold for residential rent then it does not appear to be an enterprise.

You are merely forced to dispose of a capital asset due to unforeseen circumstances unrelated to any enterprise.

However, If you look at your debt serviceability and finances at time of acquisition and it seems the only viable option for a long term hold of the initial IP was by subdivision and sale of the extra land then a profit intention may be inferred. Not so good !

See MT 2006/1.

 

Mt 2006/1 is a broad view on what an enterprise is. IMO its easier to factor in margin scheme and tax savinsg and claiming GST than a 80% penalty. Tax law wast written to to favour non complaince