Are you wondering if you need to charge GST on Property (and pay it to the ATO) on the sale of your property?
Author Alan Maddick 15th September 2020 – please note: this discussion is about Residential Property
Firstly on second hand property there is no GST in any situation. Do please be careful though about what the Australian Tax Office defines as new vs existing property. Their definition is;
A new residential property is a property where any of the following apply:
- It hasn’t been sold as residential property before.
- It’s been created through substantial renovations.
- New buildings replace demolished buildings on the same land.
- One of the properties above that has been rented out for
- less than five years
- more than five years but it has been actively marketed for sale while it is rented.
So you see you could have rented your property for a number of years and still need to collect GST on the sale and submit it to the ATO, you could also be liable to collect GST on the sale of a property that was built in the 1950s but has recently had a substantial renovation. GST on Property is 10% of the sale price so you really need to be certain of this before you commence your property project as it will have a marked effect on your after tax profit.
New Property has GST on the sale but many Mum and Dad “Investors” or first time property developers are misled by the following phrase on the ATO website “GST only applies to the sale of certain property types if the seller (vendor) is registered or required to be registered for goods and services (GST) purposes.” They then think they are not registered for GST so there will be no GST due on sale. However remember if you are in business and you turn over over $75,000 then you are required to be registered for GST!
The ATO can deem that you are in the business of property development from only one transaction so you need to be very careful if you are developing a new property for example a brand new build or a subdivision or even if you conduct a major renovation.
When you buy a property to make money you are not always in the business of property development you could be buying the property as an investment. This becomes a key point in terms of GST and a possible individuals requirement to be registered for GST and so charge GST on the sale of their property.
Some factors that may indicate you are in the business of Property Development;
- Repeated transactions (even if there is a number of years in between each transaction)
- Using a company or trust to acquire property
- Selling property before it has been rented out
- Claiming GST credits back on construction or improvements
Some factors that may indicate you are a property investor;
- Renting properties out to make ongoing revenue from them
- Holding properties for a number of years
- Generally invest in Individual Names
This list is not exhaustive and this area is complex and confusing but these are some of the factors that the Australian Tax Office will consider under an Audit situation.
You can read more about GST on Property at the ATO Site Here
If you want to contact us for a confidential discussion of your situation please contact us here