hi
i have recently constructed a house to sell, claiming back the gst as construction continued. however, it now looks as if i will have to rent it out. does that gst become payable if i retain the house and rent it out?my intention was never to hold the property.
graceGrace
The previous view adopted by the tax office was that you had to pay back the GST on the construction costs.
However, there has been a recent change – The ATO now accepts that where the developer continues to actively market the property as being available for sale, at the same time that it leases the premises, the developer is only required to make a partial adjustment.
Check out ATO ID 2008/114 at http://law.ato.gov.au/atolaw/view.htm?rank=find&criteria=AND~ATO%20ID%202008%2F114~basic~exact&target=JA&style=html&sdocid=AID/AID2008114/00001&recStart=1&PiT=99991231235958&recnum=1&tot=1&pn=J:::J.
Eddie
[email protected]hi eddie
thanks for your reply. it is very good news, i think! the ato worker bees must have phd's in obtuse writing……!
what does the adjustment period refer to? from what i can understand it to read; in aug of this year, there was a change which allowed you to keep the property as long as it is still actively marketed. how long would that apply for? if the property sits unsold for 12-months or longer, would it still be excempt from repayment?
would a letter from your real estate agent confirming that it was still on the market be enough?
graceHi Grace
The term "adjustment period" refers to, very broadly, the time period one needs to monitor the change of use of an asset to make adjustments for the GST previously claimed (or not claimed) when it was originally purchased. For properties, the general time period you have to monitor the use of the property is 10 years.
Therefore, if you claimed all the GST on the construction costs on your property on the basis that you were planning to develop and sell but instead rent the property out as residential premises for a period within 10 years, you will need to pay back some of the GST claimed. The tax office provides that you need to make an adjustment on a reasonable basis. While there is no hard and fast rule on what is "reasonable", the ruling provides the example where you use the total return on the property (rental income and ultimate sale price) to apportion the GST claim. On this basis, the longer you rent out the property and therefore derive more rental income, the bigger the GST claw back. On the other hand, the higher the amount you can sell the property for, the smaller the GST claw back. I suggest that you speak to your accountant to work out the amount.
Yes, I think confirmation from the real estate agent proving that you have been actively marketing the property will suffice.
Eddie
[email protected]You won't need a letter from your REA, if you have an Agency Agreement which has not been terminated then this is sufficient to prove that the property is 'for sale' (unless you have given the agent instructions not to advertise and take it out of their window).
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