Hi can someone clarify whether GST is payable on the sale of new developments? That will almost make a profitabable project border line? Can this be avoided if you rent for a few months, is there a more cost effective way to do this?
Thanks
Yes.
GST generally applies to the sale of residential property if they are 'new' and this includes substantially renovated property.
But the developer will be able to claim GST paid out on materials.
They may also be able to use the margin scheme which will enable GST to be reduced by only charging it on a portion of the sale price.
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, when you say substantially renovated properties, how renovated do they have to be to start paying gst? If crows was to rent the property for say a year or two would the gst be exempt?
New means up to 5 years old. So if you construct and rent it for 4 years and then sell GST may still apply to the sale.
The substantially bit isn't defined in the GST Act, but there is an ATO ruling which outlines their view.
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
Having trouble sleeping? Read a tax ruling
GSTR 2003/3 – Goods and services tax: when is a sale of real property a sale of new residential premises
http://law.ato.gov.au/atolaw/view.htm?docid=GST/GSTR20033/NAT/ATO/00001
EXTRACT:
Criteria for substantial renovations
60. Whether renovations are substantial is to be determined in the light of all the facts and circumstances.
61. We consider that for substantial renovations to occur for the purposes of the GST Act, the renovations need to satisfy the following criteria before it is necessary to make further inquiry to establish whether the renovations are substantial:
(i)
the renovations need to affect the building as a whole; and
(ii)
the renovations need to result in the removal or replacement of all or substantially all of the building.
62. Where one of the above criteria is not satisfied substantial renovations have not occurred and no further inquiry needs to be made.
Substantial renovations need to affect the building as a whole
63. Under this heading we discuss the concept of a building in its entirety, works on surrounding land (for example, curtilage) and additions to the building.
Building in its entirety
64. Whether substantial renovations have occurred should be based on consideration of the building in its entirety, that is the building as a whole, and not by reference to specific or individual rooms in the building. For renovations to be substantial they must directly affect most rooms in a building. The renovation of only one part of a building, without any work on the remaining parts of the building, would not constitute substantial renovations.
65. For example, the owner of a large 4 bedroom house removes the wall between two bedrooms for the purpose of creating a large bedroom with ensuite. The former door to one of the bedrooms is removed and replaced with gyprock so that the newly created larger bedroom can only be entered by one doorway. The room is repainted and recarpeted. Although significant, the work does not constitute substantial renovations as only one area of the house is affected.
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