GST and property – should be pretty simple right? – Wrong! the application of GST on property sales and construction is surprisingly complex and far beyond what I can cover here. Please ensure you get professional tax advice on your GST position.
What I want to talk briefly about is a common situation and error that I see occurring – Mum and Dad do a small property development – perhaps they knock down a house and build 2 houses. Perhaps they live in one for a couple of years and sell the other one fairly quickly. Do they need to pay GST on these sales?
Many clients and Accountants when advising clients rely on this phrase “GST only applies to the sale of certain property types if the vendor is registered or required to be registered for GST purposes” or similar and will advise clients “you don’t need to pay GST as the development is a one off, its private in nature you are not in the business of property developing” or words to that effect. Now this is not true at all because even if you are not registered for GST you are required to register if your GST turnover is over the threshold ($75,000!). There are not many property developments you can sell for under $75,000!
Even if the development you are doing now is the first one you have done, if you are entering the development with a view to make a profit on sale the ATO will generally take the view you are in the business of real estate development and will want their 10% GST. It is then critically important you build this cost into your feasibility studies when looking at developments as in many cases the 10% GST may be a large portion of your profit from the project.