Hi all I am in the processing of conducting a subdivision. What is the ruling on GST and new residential dwellings? Do you need to pay GST on the sale of the property or is this only the case if the sale of the property is your main source of income.
You are generally liable to remit 1/11th of the contract value as gst. But….. If you apply the margin scheme it will be a lot less – see your accountant yesterday.
fredo_4305 wrote:Hi all I am in the processing of conducting a subdivision. What is the ruling on GST and new residential dwellings? Do you need to pay GST on the sale of the property or is this only the case if the sale of the property is your main source of income.Generally you would have to remit 1/11th of GST on the sale, or 1/11th of the margin if you use the margin scheme. You can also claim GST credits on expenses during the building process.
If you wish to use the margin scheme, it must be mentioned in the sales contract. See your accountant before you present a contract to sell.
ATO has a new online 'calculator' on GST
https://expertsystems.ato.gov.au/scripts/net/GSTProperty/Introduction/GSTPropertyIntro.aspx?Task=da80fe99-4af2-4f1c-87e8-e0c361999fb6&NavGraph=Home&View=HomeView&PID=68&ms=Tax%20ProfessionalsTerryw | 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
If you do not use the margin scheme or wasnt included in your contract of sale, does this mean that the credit which would ordinary be available for the cost of land (i.e 1/11th of cost of land) will not be available anymore?
Also my understanding is as follows:
Use of margin scheme –
I.e. you buy land for 500k, develop units and sell total number of units at $2m.
Margin = 1.5mill therefore GST = 1.5/11 = 136,364
Now although this is required to be remitted, you can claim further GST credits from the cost of developments, consulting, and demolition etc… Therefore net amount required to be remitted could be potentially much lower i.e. 20k.Am I on the right track?
I am reading this document – http://www.ato.gov.au/content/downloads/bus70665nat15145072010.pdf
From that I cannot tell what the case would be if one does not use the margin scheme, however its good source to understand the margin scheme in plain english.
Yes, you are on the right track.
If you claimed GST on the purchase of the land, then the margin scheme is not available to you.
Your other figures seem correct. GST using the margin scheme is calculated as 1/11th of the difference between the cost of the original purchase, and the sales price, not including stamp duty, agent's fees etc.
This is a bit of a change of topic but I was also under the impression that GST is only payable if you have entered into the development with 'an aim to make a profit'?
If you were able to show that your original purchase was not with the intent to develop (i.e. you lived in a dwelling for some time, then decided to sub-divide), would GST no longer be payable on the sale price of the new house or vacant land?
ThanksThat's right. GST registration is only required if you are running a business. Developing for profit would most likely be considered a business, but a once off development as per your example would most likely not be considered a business for GST purposes.
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