I have recently been reading that if you buy a house and land package from a developer under an entity that is gst registered, then you are eligible to receive gst credits if you intend to onsell the property on completion.
I am looking to apply this to a new house and land package that I am planning to purchase in my own name and onsell (I receive significant benefits on my mortgage since I work for a bank but I am pretty sure they are only available if taken out in my own personal name).
If my assumptions are correct, then being gst registered would be great for my cashflow, assuming I could claim the gst back immediately on each progress payment. It would basically finance the deposit for each stage of the development.
I would really appreciate some guidance:
1. Can an individual be gst registered?
2. Is there a downside to being gst registered as an individual?
3. Can I claim gst as a cash payment every month from the ATO, or is it literally only a credit that accumulates until you onsell the asset?
4. What defines when the asset is sold and gst becomes payable. i.e. Is gst payable only on title transfer, or when the property is sold to another buyer? (yes these can be 2 different things in the investing world)
5. Any other advice anyone can give me on this topic would be greatly appreciated. I have tried searching by "gst" on this forum, but since it is a 3 letter word it won't allow it (most annoying, admin can we get this changed?). The ATO website really didnt help me trying to understand my situation.
Thanks,
MattMatt what do you expect to gain from being registered for gst? It does not give you any benefit that anyone who isn't registered wouldn't get anyway. ie you cannot add gst to the selling price, it is gst inclusive (unless it is a going concern for commercial property).
Hi Scott,
If I purchase a house and land package which is gst inclusive, the benefit is in the gst credit I receive from the ATO for each progress payment during construction, which won't be repaid until I sell (which I am hoping is defined as transfer of title, which for me could be a while later). In the interim I have 1/11th of the property's value retained as a deposit on the mortgage freeing up cashflow.
While it wasn't specifically what the article was about, I read about the possibility in the May 2009 "Your investment property" page 84.
Cheers,
MattGST is usually paid on a quarterly basis – you pay the difference between the reciepts and the income recieved. As for the trigger date, it is the date of the contract not settlement.
In the meantime, you will still have paid the deposit on the land (as the construction contract is a separate matter) as well as stampduty on the transfer of title.
Thanks Scott,
Hmmm, so let's say for example I sign a contract with a builder for $300k and a few weeks later I get a deposit of $20k from the eventual owner, for $20k more than I am paying for the property, but it won't settle for another couple of years. Does that mean I have to pay the gst on the $20k I have received in cash, or on the full $320k?
Surely you only pay gst when the money is received, not on the contract signing for the full amount?
To put it in another business case scenario….
If I sign a 2 year mobile phone contract at $44 per month (incl gst), surely the phone company only pays the gst when they receive payments from me each month, not 2 years in advance. Otherwise before receiving any money from me they have to pay $96 in gst in advance.
mattnz wrote:Thanks Scott,Hmmm, so let's say for example I sign a contract with a builder for $300k and a few weeks later I get a deposit of $20k from the eventual owner, for $20k more than I am paying for the property, but it won't settle for another couple of years. Does that mean I have to pay the gst on the $20k I have received in cash, or on the full $320k?
Surely you only pay gst when the money is received, not on the contract signing for the full amount?
You can be registered for GST on either a cash basis, or an accruals basis. Accruals means you are liable for GST when the contract is signed, Cash method is obviously when you receive the cash.
Deposits are an interesting one, because the GST is payable on the supply of goods or services. When a deposit is paid, has there been a supply of goods and services by the supplier? The Reliance Carpets case has looked at this, and I think is currently under appeal.
That's great to hear thanks Dan
Exactly the answer I was looking for. Based on that I can do what I was hoping to do.
Is this from experience, or are you a tax expert / accountant?
Matt, your issue will still be that even though you have recieved a deposit from a purchaser (either on accrual or cash basis) you will still have to pay the gst to the builder & lodge your BAS in order to get your credits until settlement.
I don't care about paying gst to the builder, (I have to do that regardless as my purchase price is incl gst), as long as I can claim it back from ATO as well. It looks like I can lodge monthly cash claims on my gst. Obviously I need to discuss this with a tax expert who really knows what they are doing, but at least I feel I am heading in the right direction.
Sorry what is a BAS?
Thanks,
MattBusiness Activity Statement (the form you use to advise how much gst you have paid and how much you have charged).
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