Property & GST

When does GST Apply?

Whether GST is applicable really depends on the particular circumstances of each property transaction. Generally buying and selling second hand residential property is not subject to GST. However where your ‘turnover’ is more than 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 considered to be a ‘residential premises’ even if a residence may be constructed on it. To be a ‘residential premises’ the land must be either occupied as a residence or be capable of being occupied as a residence. Therefore most transactions involving vacant land may be subject to GST.

Generally, the amount of GST you must pay on property sales is equal to one-eleventh of the sale price. However in some circumstances, the margin scheme may apply.

The margin scheme is an alternate way of working out the GST you must pay when you sell property. Under the margin scheme the amount of GST payable is one-eleventh of the margin, with the margin being the difference between what you paid for the property and the sale price. However if you were charged GST when you originally purchased the property, the margin scheme can’t be used. It is also important to note that both the buyer and seller must agree in writing to apply the margin scheme.

GST and New Residential Property

I previously mentioned that second hand residential property is not subject to GST. New residential property on the other hand may be subject to GST. This is because the construction of new residential premises may be considered as operating as an ‘enterprise’, even if it is a one-off transaction.

New residential property is a property where any of the following apply:

it hasn't been sold as residential property before
it's been created through substantial renovations
new buildings replace demolished buildings on the same land
one of the properties above that has been rented out for
- less than 5 years
- more than 5 years but it has been actively marketed for sale while it is rented.

As with vacant land, the margin scheme may be applied in some circumstances on the sale of new residential property.

It is also important to note that for contracts entered into after 1 July 2018, purchasers of new residential premises or potential residential land are required to withhold an amount of the contract price and pay this directly to the ATO as part of the settlement process on sale. The withholding amount will generally either be:

1/11th of the contract price (for fully taxable supplies); or
7% of the contract price (where the supplier is using the margin scheme).

GST and Commercial Property

Whether buying, selling or leasing commercial property, it is generally considered it will be used as part of an enterprise and therefore GST is applicable. However, in certain circumstances, the sale of commercial property may be considered to be GST-free if sold as a ‘going concern’.

A commercial property is sold as a ‘going concern’ if the sale includes everything necessary for the continued operation of the business and the business is carried on until the day of sale. Property that's part of a sale of a going concern can include any of the following:

the business property, when sold together with the assets and operating structure of the business
a fully tenanted building, where the property and all leases, agreements and covenants are included in the sale
a partially tenanted building, where
- the vacant part of the building is either actively marketed for lease or undergoing repairs or refurbishment
- all leases, agreements and covenants are included in the sale.

The sale of a property by itself isn't regarded as a going concern.

What's Next?

As you can see the rules around GST and property can be quite complex and given the cost involved in most property transactions, it is important to ensure that GST has been appropriately budgeted for. Therefore we recommend you seek advice before buying or selling a property, to ensure that you are aware of the potential GST implications of the transaction.

We have an experienced team here at BLG Business Advisers to help you out 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!