When does GST Apply in Property Transactions?
Whether GST is applicable depends on the particular circumstances of each property transaction, and the vendor selling the property. Generally, buying and selling second-hand residential property is not subject to GST. However, if your 'turnover' exceeds the GST registration threshold and your activities are regarded as an 'enterprise', then GST may be applicable.
Common property transactions that may be subject to GST include vacant land, new residential property, and commercial properties.
GST and Vacant Land
Vacant land is not classified as 'residential premises' even if a home can be built on it. For land to qualify as 'residential premises', it must either be lived in as a residence or be suitable for residential occupation. Consequently, transactions involving vacant land may be subject to GST.
Typically, the GST payable on property sales is one-eleventh of the sale price. However, the margin scheme might be applicable in certain cases. This scheme offers an alternative method for calculating GST on property sales, based on one-eleventh of the margin (the difference between the purchase price and the sale price). It is important that both the buyer and seller agree in writing to use the margin scheme.
GST and New Residential Property
Although second-hand residential properties are exempt from GST, new residential properties are generally liable for GST. This is due to the fact that constructing and selling new residential premises can be seen as conducting an 'enterprise', even if it's a single occurrence.
A new residential property is characterised as one that has not been previously sold as a residential property, has undergone significant renovations, or where new buildings have replaced demolished ones on the same site. In some cases, the margin scheme can be utilised for calculating GST on the sale of new residential properties.
For contracts signed after 1 July 2018, buyers of new residential premises or potential residential land must withhold a portion of the contract price and remit it directly to the ATO during the settlement process. The withholding amount is typically either 1/11th of the contract price (for fully taxable supplies) or 7% of the contract price (when the margin scheme is applied by the supplier).
GST and Commercial Property
When purchasing, selling, or leasing commercial property, GST is often applicable. However, in some cases, the sale of commercial property can be GST-free if it is sold as a 'going concern'.
A commercial property will generally be considered a 'going concern' if sold as a fully leased building with all leases, agreements, and covenants included, or a partially leased building under specific conditions. Alternatively, a commercial property may be eligible for the going concern exemption if sold as part of a business sale, with all other business assets.
Why Expert Advice is Essential for GST Compliance
The rules around GST and property can be quite complex, and given the costs involved in most property transactions, ensuring that GST has been appropriately budgeted for is crucial.
We recommend seeking advice before buying or selling a property to ensure you are aware of the potential GST implications. Our experienced team at BLG Business Advisers is here to help so please feel free to talk with us. Our team are Wollongong Accountants who service right around Australia. There is no cost or commitment involved in an initial chat with us, which leaves you free to decide if we are the right fit for you.
Whatever you decide we wish you and your business every success!