I need to check my understanding here, can someone clarify if I’m on the right track or not!
a) If I buy land build a home and then sell it immediately, I can claim the GST as a refund during the buiding process and when I sell I pay GST on the sale.
b) If I buy land and build and claim the GST credits during construction, but then change my mind about selling and keep hold of the property, I believe I then have to pay back the GST credits I’d claimed as credits are not avilable on a property used for rental purposes. Is that correct?
c) If I do as per point b, but within 5 years sell the property, then I believe I can calima aproportion of the GST. If this is the case, I assume I also have to pay a proportion of the GST upon the sale?
Have I got the gist?
PK
Is anyone able to clarify?
PK
a) If I buy land build a home and then sell it immediately, I can claim the GST as a refund during the buiding process and when I sell I pay GST on the sale.
“Yes you would be completing the transaction under the margin scheme and claiming your input credits as you go and then be up for GST on the sale price on sale”
b) If I buy land and build and claim the GST credits during construction, but then change my mind about selling and keep hold of the property, I believe I then have to pay back the GST credits I’d claimed as credits are not avilable on a property used for rental purposes. Is that correct?
“No you can claim the input credits back and if you rent the property out for a couple of years you will not be required to repay the GST. Remember when you sell the property it will not be new and therefore there will be no GST payable on a 2nd hand property
We often keep a property in each of our developments to reduce tax liabilities and build up asset base. You can still retain the GST credits”
c) If I do as per point b, but within 5 years sell the property, then I believe I can calima aproportion of the GST. If this is the case, I assume I also have to pay a proportion of the GST upon the sale?
“Why would you only claim a portion of the GST? You would claim it all. You would however have to pay CGT dependant on the end sale price. CGT is paid on the profit between the end sale price less sale costs less purchase price plus purchase costs”
You may receive an enquiry from the ATO why you are making a claim for input credits and then not be making payment on the end sale price but that is easily explained.
In saying all of this i assume you are GST registered.
Cheers Richard
Ph: 07 3720 1888
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http://www.yourstatefinance.comSpecialising in US & IP finance.
Richard Taylor | Australia's leading private lender
thank Qld007,
I was reading an article in the Personal Investor (Dec 2004), yes I know it was a while ago, it was called “Rental’s hidden traps”, anyway it says there:
” Property Investors who build new residential property houses or units for sale can face hefty GST bill if they decide instead to rent out the porperty.
Renting out the property changes the GST status of the investment. In GST terminology, the change in use has caused the loss of “creditable purpose” for the property.
This has important consequences because the substantial input tax credtis claimed during construction are no longer available once the use of the property changes to rental. Renting our residential premises does not attract GST. However, the flipside to this is that there is no entitlement to claim back any GST of things claimed with this activity.
Investors will then need to refund to the tax office all input tax credits they have claimed.”
And so the article goes on. It’s written by Tony Greco. But this is where my information come from and hence my questions.
Regards
PK
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