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28 February 2019

GST Requirements when dealing in property

When dealing in property, either as a rental investment in commercial premises or developing a property for resale, you may be required to register for GST.

Generally, if you only receive residential rent you won’t be required to register for GST. The same is true if you are developing or constructing your family home or principal place of residence.

Even if you are not operating a business, the GST registration requirements will be determined based on the below:

  • If the turnover from your property transactions and other transactions are more than the GST registration threshold – currently $75,000 in one year
  • If your activities are regarded as an ‘enterprise’

Your property activities may be regarded as an ‘enterprise’ by the ATO if you buy land with the intention of developing it for immediate resale at a profit.

This rule applies if you are constructing a new residential premise for sale only. You are not liable for GST if you develop and sell residential premises that have previously been sold as residential premises.

“New residential premises” is a term that applies to properties where any of the following apply:

  • They have not previously been sold as residential premises
  • They have been created through substantial renovations
  • New buildings replace demolished buildings on the same land

Residential premises are no longer considered “new residential premises” if they were built for sale but are then used solely and continuously for rental for a period of at least 5 years. However, if the premises are actively marketed for sale while they are being rented, the property will continue to be classified as a new residential premise when it is sold.

If you do fall into this category and are developing a new premise for sale, you will need to:

  • Register for GST
  • Record all purchases related to the construction, development and sale of the property – see our rental property income and expenses spreadsheet here that can be used for this purpose
  • Report these purchases and claim back the GST paid on applicable purchases in quarterly or annual BAS lodgements

When you come to sell the new premises, you will need to:

  • Notify the purchaser in writing that there is a requirement to withhold an amount of the sale price on settlement.
  • Provide the purchaser with the amount to withhold and your name and ABN
  • The purchaser will then lodge the necessary forms with the ATO and pay the withholding amount directly to the ATO
  • Report the sale price of the property in the relevant BAS lodgement, including a GST claim for any GST applicable purchases made during the same lodgement period
  • The amount the purchaser has withheld and paid to the ATO will be counted as a credit on your ATO BAS account

Please note, the obligation on the purchaser of a new residential premise to withhold an amount and pay it to the ATO is not an additional payment on top of the agreed sale price. The amount withheld will generally be one-eleventh of the agreed sale price. If a margin scheme applies the amount withheld will be 7% of the contract price.

To register for GST, you will need to ensure you have an ABN first.

If you think you may be required to register for GST for your property activities, please contact our office to discuss your needs.

The ATO also has a GST property decision tool available here.

 

Liability limited by a scheme approved under Professional Standards Legislation. Liability is limited in those States where a current scheme applies.   

 

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