Hi, this is a first post, so I will do my best to be at least semi-coherent. My brother and I inherited our father’s property consisting of two commercial rentals and his home. For some years the home was rented out by us and we are registered for GST. Recently we demolished the old home and subdivided the property into two green title lots one in his name and one in mine. The intention was to keep them for retirement within our own respective families. First question, is the subdivision of common property to create new residential lots a GST ‘event’ a taxable supply? and second question, I am under some financial pressure and want to sell one of the lots, do you think I might I have to pay GST given that I am not a developer by any stretch of the imagination, though I do have a couple of other properties (vacant land) for personal investment? I would appreciate your views before I speak to the ATO.
You have created a new piece of land so GST would be applicable when you first sell it. It is the buyer that pays it to you and you remit it to the ATO.
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
Terry, would the sale price not be 'GST inclusive' ie the vendor would remit 1/11th (or via the margin scheme) as it would be highly unlikely that the buyer of a residential block would be willing to pay a visibly higher price for the block because of the gst (regardless of whether or not they were registered)?
Yes
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
Yes, but this is where it gets interesting (or expensive). From what I am reading from the ATO site, the property is considered to be a partition ad therefore GST is payable (hopefully margin schemed) at point of partition. It seems the rulings are clear on this. But what does that mean for a future sale? (1) GST on partition into two titles (2) CGT on sale but then (3) GST on sale again as considered new property??? Surely this is overtaxing if that is the situation? It seems the partition GST and the CGT are correct, but surely GST wouldn’t apply again?
By the way, Terryw, though it is true the purchaser pays the GST and the vendor remits it to the ATO the practicalities seem to be the opposite. For example, if a block of land is valued by agents at $300k to achieve a sale and the price set by other land sales in the area (land sold as sub-divisions from PPOR land) then your ‘new’ land will need to be sold at $330k. Why would a residential purchaser pay an extra $30k? They wouldn’t. So the GST has done on of two things to the sale of land, either increased property prices by 10% across the board or developers are taking a 10% ‘haircut’ across the board. I might be completely off the planet with this logic, what do you think?
The developers' prices already include the effects of gst, most likely based on the margin scheme as it would be unviable to pay GST on the entire cost of the block.
With regards to the earlier post, the 'new block of land' is subject to gst & cgt. If the purchaser then develops this site, they may consider using the margin scheme when they resell (as new dwelling). The old block, if you choose to live on it is not subject to gst or cgt as your ppor.
blubarb19 wrote:By the way, Terryw, though it is true the purchaser pays the GST and the vendor remits it to the ATO the practicalities seem to be the opposite. For example, if a block of land is valued by agents at $300k to achieve a sale and the price set by other land sales in the area (land sold as sub-divisions from PPOR land) then your 'new' land will need to be sold at $330k. Why would a residential purchaser pay an extra $30k? They wouldn't. So the GST has done on of two things to the sale of land, either increased property prices by 10% across the board or developers are taking a 10% 'haircut' across the board. I might be completely off the planet with this logic, what do you think?That sounds right. the GST would have to be included in the market price which someone would pay and so in reality it is the seller that actually pays for it. although technically it is the buyer.
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
it doesn't sound to me like you are a developer and therefore you do not have remit GST on the sale. From what you have described it seems like an isolated transaction and not an 'enterprise' accordingly gst would be be either charged or remitted to the ATO in the event of a sale.
You should competent accounting advice now and if necessary a private ruling.
Check out this case summary for an idea about what the rules are http://cgw.com.au/legal-alerts/january-2010/ato-determines-that-developer-of-22-lot-subdivision-does-not-have-to-regis
minor correction
it doesn't sound to me like you are a developer and therefore you do not have remit GST on the sale. From what you have described it seems like an isolated transaction and not an 'enterprise' accordingly gst would be Neither charged or remitted to the ATO in the event of a sale.You should competent accounting advice now and if necessary a private ruling.
Check out this case summary for an idea about what the rules are http://cgw.com.au/legal-alerts/january-2010/ato-determines-that-developer-of-22-lot-subdivision-does-not-have-to-regis
benofbrisbane wrote:minor correction
it doesn't sound to me like you are a developer and therefore you do not have remit GST on the sale. From what you have described it seems like an isolated transaction and not an 'enterprise' accordingly gst would be Neither charged or remitted to the ATO in the event of a sale.You should competent accounting advice now and if necessary a private ruling.
Check out this case summary for an idea about what the rules are http://cgw.com.au/legal-alerts/january-2010/ato-determines-that-developer-of-22-lot-subdivision-does-not-have-to-regis
I don't think this is correct. I am selling a new property right now and have looked at the GST Act and am under the impression that GST would apply whether registered or not. I haven't looked into it too closely as I haven't found a buyer yet.
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
How did you determine it to be a new property, Terryw? Was it partitioned off a block of land or from your PPOR? From what I have been reading, if you are not registered and it is not a furthering of an enterprise then there should be no GST only CGT.
Mine was a new block with a new house – never lived in which meets the definition of new under the act. I have some notes on the research I did somewhere.
I will report back tomorrow and in the meantime, You should look at the primary legislation which is the GST Act http://www.austlii.edu.au/au/legis/cth/consol_act/antsasta1999402/
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
It would be a new property as it would have title details different to that of the original block. You would have submitted a plan of subdivision etc to create a new (smaller) parcel of land.
As for gst – isn't there some obligation/compulsion to be registered if turnover is >$75k? Otherwise you would not be able to claim back any of the gst paid on your inputs (eg subcontractors for drainage works, driveways, planners etc).
have a look at this – i think it might help –
I wouldn't recommend reading the act unless you are a specialist tax lawyer
http://www.bantacs.com.au/booklets/How_Not_To_Be_A_Developer_Booklet.pdf
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