Hi,
An accountant once told me its possible to claim back the GST when I build a new property as long as I dont sell the property with five years.
This is a huge bonus as it is effectively a 9%+ reduction on the price of the house.
I was wondering if somebody can explain to my how this works.Im not registered for GST myself so I assume I would have to create a company and register it for GST.
For example …
Lets say I buy some land for $100,000 I form a company register it for GST and it employs a building company to build me a $200,000 house.
On completion the company lodges a quarterly BAS and receives $20,000 back then has to pay say $1000 in admin expenses.
Net discount to me $19000.Is this correct ??
What if somebody has already started building the house described above and I turn up and say Id like to buy that house in four months when its finished?. At this point is it to late to put all the documents in place to claim the GST ?
Also,
What if I live in the new house for some period of time once its finished does that change anything ?Hi mark,
you will need to BUY the property in the company name. You cant just buy it in nay name and have the GST attributed to a shelf company as such. When you buy the property with the right entity that claims the GST, the ATO will go through you like a fine tooth comb to ensure that the claim is legitimate. That is, that you have purchased the property with the intention of on-selling it in a certain time frame.
Whilst this may look attractive to claim the GST back, when you sell you must pay it back along with GST on the profit. I dont see the ATO allowing you to do this for a buy and hold. You cant claim GST for a house that you will live in, the ATO are against handing out money so they will look at you with a microscope if you try. Also, you dont get all tax benefits buying through a company, no CGT discount.
You don’t need a company to claim gst, you only need to have an abn/acn and register for gst.
Also note the comments above.
You seem very negative about this idea. If its legal the why wouldn't I do it ?
Just to clarify this seem to be the best way to use it.
Suppose I want to build an investment property. I get an accountant to set up the right structure. I buy the land as ABC company. ABC company then employs a builder to build the house for say $200,000. It claims back $20,000 GST and then I rent the property out to somebody for at least five years before I sell. That way I get to keep the GST refund ? when I sell. And I can just wind up the company when im finished ?
Or as Scott suggests mabey I dont need a company. Registering for gst myself might have other implications though ?
Is the only requirement from the ATO that myself/ABC company built the property with the intention of selling it ? As long as I dont live in it this seems like a pretty easy one to fullfill.
Am I missing anything here ?
I don't know about claiming GST. But if you buy using a company you wouldn't get the 50% CGT exemption.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
mark76
I think that is not possible, Builder is the one that will claim back GST on expenses, and ATO doesn't pay GST twice.
It works like this;
-You collect GST when you get paid (you wont make income, thats the problem)
-You pay back GST on your profitIf you go in minus in that financial year, like what you are saying you will do with your company, Government will not pay you GST to hold it, you can only claim i think 2000$ which will be reduced next time when you actually make profit, so instead of giving back 8,000 gst you will only have to pay 6,000 in the next financial year.
Companies don't 'hold on' to GST, you only take it from private entity, and give it back to Gov.
I do recall a tax ruling a few years back when the market tanked & developers were stuck having outlayed gst but could not rent out the properties & claim back the gst. The ruling was a sensible outcome for the developers.
I’m not sure it is possible…
The way you’re trying to structure the transaction is:
1. Build the home
2. Claim back $20,000 in GST that you paid to the builder.
3. Rent for over 5 years until it’s no longer a “new residential premises” and then sell GST free.If you rent it out for over 5 years, I think it ceases to be a “new residential premises”. This would most likely be considered a change in the creditable purpose. In this case, there would be a Div 129 GST adjustment required, and you would have to repay the input tax credits you claimed on the construction costs. Stumping up 20k+ to the ATO when you may not have any cash left isn’t a nice prospect!
It is still considered “new residential premises” if you rent and sell within 5 years. However, to avoid the above situation you have to show you are holding it for resale (and not as an investment). This could include actively marketing it for sale, etc. You will then have to pay GST when you sell so in either case I don’t think it will work.
I could be wrong though. Anyone else have similar thoughts?
Read:
GSTR 2009/4
GSTR 2000/24
http://www.ato.gov.au/government/content.aspx?menuid=0&doc=/content/00197808.htm&page=6&H6As a company, you get to claim the GST back, on the build and even on the land purchase. However the ATO WILL audit you and assess your intentions especially if it is your first time claiming. So you do get to “hold on” to GST. It takes me 9 months to do a development, i claim all GST back on the land and construction contract during that 9 months and I hold it, then when I sell, I pay it back along with GST on my profit also. Remember, the government does not have money to give away, they will not part with it lightly any more and they will assess EVERYTHING.
I’m not sure about the 5 year rule, as if i hold a property for more than 12 months I never want it in a company name as I don’t receive ANY CGT discount. FORGET THAT!!
My experience is over the years there was times when i had paid more GST then collected, and i was NEVER able to 'hold on' to GST. As i explained in my previos post, Gov. gives maximum $2,000 which you cant hold, you can only deduct it next time you make profit.
This is just my experience, you better talk with an accountant.
I think what’s been said above could be quite confusing. To clarify:
Basically, if you never sell the property (you mentioned renting it out or living in it), you will have to make an adjustment in your BAS to pay back the GST that was refunded to you. So you don’t get to keep it…
The next issue is claiming the GST back. If you lodge a BAS with a $20k refund, there is a very good chance the ATO will come back to you with a magnifying glass, or may limit the amount that you claim.
To answer your other question, if you bought the property when it’s finished you will NOT be able to claim any GST.
Wow this is confusing.
So I cant claim on a house somebody is already building. Ok that makes sense.
I can claim on a house my company has purchased the land for and then employed a builder to build on. OK
If I sell the house I have to give the GST back.
So the real question is what if I dont sell the house but I say my intention was to sell it.
Assuming all my books are in order and I dont live there I dont see how the ato can dispute my intention.
I could list it on realestate.com at a stupidly high above market price so it just sits there forever.After five years can I sell and keep the GST ? The account said it was possible.
What if I hold until the day I die ? or hold so long that inflation turns my gst debt into a trival amount of money ?Thanks,
Mark.
GST is very confusing, especially with property.
This is my understanding:
Residential property is generally exempt from GST. But new property is not. New is classed as something completed in the last 5 years.
When you construct a property you will be charged GST on materials and labour. And when you sell you will have to charge the buyer GST if sold within the first 5 years (built into price). So when you do sell you can deduct all the GST you have paid and then pay the ATO the GST you have received.
If you do claim GST as you go and dont sell the house in 5 years then you would not have been entitled to claim the GST so you would have to pay it back.
And, to claim GST on the land etc you would have to had received a tax invoice at the time of the purchase and be registered for GST.
The sort of entity you use shouldn't really change things.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
GST on property in a nutshell……..
GST on the purchase and/or build can only be claimed where the property is to be used in the making of a "taxable supply". This is the sale of the property subject to GST within 5 years.
After a property has been rented for 5 years it ceases to be "new residential premises" and the sale becomes an "input taxed supply"
Renting out a property is making an input taxed supply.
When making only input taxed supplies, it is not permissable to claim a refund of any GST paid.
Where there is a mixture of input taxed supplies and taxable supplies – a calculation is required to determine how much GST can be claimed. Broadly this is a calculation of the percentage of each class of supply over the total revenue from all classes.
Also, if a property is purchased under the margin scheme – the GST in the purchase price can not be claimed as a refund.
What are you trying to do?
Be a developer (business) or an investor?If you are in business you need to have an ABN. If your turnover is over $75,000 then you need to register for GST. As you are selling a house that is more than $75,000 this is why you need to register for GST. You can be a sole trader, partnership or a company. If you are purchasing land and then putting a house on it (with a builder doing it) you also have to take into account the Land Margin Tax Scheme. Upon completion of the property you sell it and then work out the GST.
If you are an investor you don't need to have an ABN and upon completion of the property you keep it and rent it out.
Ok reading this thread has helped and confused me. I will be selling my waterfront apartments soon and need to know if I can claim GST. So if the property is under 5yrs then I can get a refund?
Hi Paul,
If you are selling under 5 years you can claim some GST. The amount may/will need to apportion this if the properties have been rented.
You will also need to charge GST and will need to work out if you can and should use the margin scheme.
This is complex stuff – talk to your accountant!
If you try and navigate your way through this on your own you are bound to encounter problems.
I will temper the above comments – when you sell it is highly unlikely that you will add the gst onto the contract price (as it would effectively be more than the market price), you will however be required to remit 1/11th of the sales price back as gst (less if using the margin scheme).
Cheers Scott.
By charge I meant that gst would apply to sale. Should choose my words more carefully!
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