Victoria - Residential Land - GST

Discussion in 'Accounting & Tax' started by Frosty123, 12th Feb, 2020.

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  1. Frosty123

    Frosty123 Well-Known Member

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    Hi there,

    After struggling to find an old building to do a knock down and rebuild on, I'm considering the option of buying vacant land for building a new home.

    As I understand it, buying vacant land is subject to GST.
    Is this 10% GST paid by the seller out of the sale proceeds, or does the buyer pay this after settlement?

    Thanks
     
  2. Terry_w

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

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    it will depend on your negotiating power. Usually the seller pays because the purchase won't pay market value + 10%
     
  3. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Vacant land may not include GST. It depends.

    Firstly the value of land should be indentical whether includes GST or not. The developer or seller would lose the value of the GST from the proceeds.

    Then its necessary to consider who the vendor is. If the sale of the land is a mere realisation the land may not be subject to GST as its not made by an enterprise. But if its is then GST may apply. But the GST could be somewhere between 0% and 9.09% of the sale price.

    A buyer of land may or may not be able to claim GST.

    IF GST does apply then seek tax advice (based on the contract and your intended use) about how the GST should be dealt with. In many cases the buyer cannot claim the GST or it may be creditable later. Or never.
     
  4. danielcannan

    danielcannan Active Member

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    Let's say land is worth $500k ex of GST. Just to clarify, are you saying the land should be worth $500k regardless of whether GST is payable or not, or land is $500k then add GST if needed?
     
  5. Terry_w

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

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    If land is worth $500k, i would want to only pay $500k inclusive of GST.
     
  6. danielcannan

    danielcannan Active Member

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    But then you are really paying $454545 for the land, after you receive your GST refund on the next BAS. (Assuming both are registered and its a GST-able supply, of course)
     
  7. Terry_w

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

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    Not many buying residential land are registered for GST
     
  8. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Big assumption that the GST is creditable. It may often NOT be when its resi land.
     
  9. danielcannan

    danielcannan Active Member

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    That's true, the main issue usually is for the seller, who loses 1/11th of the sale proceeds (generally) to the tax man.
     
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  10. danielcannan

    danielcannan Active Member

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    Of course, it was an assumption for the argument to show the difference in inc and ex GST price, rather than a real life example
     
  11. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    If there are two buyers.
    1. Fred is a developer and he is willing to pay $500K and
    2. Mary who plans to build her home
    They will both consider $500K a fair value for the parcel no matter what as they are competing with a open market. That is the going rate. Ever seen the case of a dealer selling a car for a higher price to a business because it can claim GST v's a private user ? No.

    If Fred proposed to build and lets assume he can claim the GST his profit margin may be enhanced BUT he will pay more tax. But he isnt allowed to sell using the margin scheme when he sells. That is the rule which equalises GST so that Fred doesnt get any special bonus by claiming the full GST and also selling using the margin scheme.
     
  12. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Not correct. You have assumed that to be the case.

    Seller may use the margin scheme. Nobody will know if the GST paid is $0 or 1/11th or somewhere in between. eg Fred buys land for $500K. He can use the margin scheme . He decides to sell the land as he cant fit the approval needed. He sells for $500K. GST is nil. There is no margin.

    Seller may also have incurred costs for civils and site works etc and incurred costs and claimed the GST on those. So Fred may actually have a GST credit overall. This likely reflects the fact he lost money however
     
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  13. danielcannan

    danielcannan Active Member

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    Dealers charge more all the time, in part because they have to remit 1/11th of the sale price to the ATO. Doesn't matter who buys the car.
     
  14. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    LOL. No they dont. They may sell at different prices based on buyers capacity to haggle vs a max discounted list. But ALL buyers pay GST. If ne can claim it then good luck. Many buyers in business CANT claim all the GST. Some can. Some arent even able to claim $1.
     
  15. danielcannan

    danielcannan Active Member

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    [
    QUOTE="[email protected], post: 785083, member: 48"]LOL. No they dont. They may sell at different prices based on buyers capacity to haggle vs a max discounted list. But ALL buyers pay GST. If ne can claim it then good luck. Many buyers in business CANT claim all the GST. Some can. Some arent even able to claim $1.[/QUOTE]

    I should clarify. Dealers charge more than a private seller, because the private seller doesn't have to charge GST. The price of something is the price, then GST is added on if required.

    I think you've misinterpreted what I said, but it was my error as it wasn't clear what I meant.