Print this page

General

Generally sales of property are input taxed, so that no GST is charged on the sale. This is relevant to property developers as the Australian Tax Office generally considers them to be conducting an enterprise and where their turnover is more than the GST registration threshold they are required to register for GST. There are a number of exceptions to the rule that sales of property are not subject to GST and they are discussed below..  

Exemptions

There are a few supplies which are designated as 'input taxed supplies'. For purchasers who intend to use property to make input taxed supplies (such as banks and residential property investors), only partial or no input tax credits will be available, this amount depends on the circumstances and the intended use of the property.

The sale of a going concern is a GST-free supply if

1. both parties are registered; and
2. they agree it is a sale of a going concern.

No GST will be payable in respect of a GST-free supply, but both parties are able to claim input tax credits.

The margin scheme is a way of working out the GST a person pays when they sell property as part of their business. The amount of GST that must normally be paid on a property sale is equal to one-eleventh of the total sale price. However, when a margin scheme is used, the amount of GST that is paid on a property sale is equal to one-eleventh of the margin.

The margin is generally the difference between the sale price and one of the following:

1. the amount paid for the property; or
2. the value of the property provided in an approved valuation of the property as at 1 July 2000 (if certain conditions are satisfied).

The margin scheme is only available if a property has not previously been sold since 1 July 2000 or, if it has been sold since 1 July 2000, it has only been sold under the margin scheme or as a going concern. Once a property is sold under the normal GST regime, the margin scheme ceases to be available in respect of that property. Further requirements depend on when the property was purchased or sold.

There is no GST payable while a deposit is retained by the vendor's agent or lawyer, since it is not considered to be consideration for supply. However when the deposit:

1. is either forfeited because of a failure to perform the secured obligation; or
2. applied as all or part of the consideration for a supply,

then GST becomes payable on the deposit.

Residential sales

No GST is payable on sales of existing residential property. However, vendors of new and substantially renovated residences are required to pay GST. The term "new residential premises", is defined to include residential premises which have not previously been sold as residential premises or been the subject of a long-term lease.

A long-term lease is where a residential property has been rented for 5 continuous years after first becoming a new residential premise. Where this has occurred the property is not considered to be a “new residential premise”. However for this to apply the property must not be used for dual purposes for the duration of the long term lease. The rationale behind the exception is that the value added by developers should be subject to GST.

The margin scheme mentioned above can be used further minimise the GST payable by purchasers in respect of the purchase.

Farm land

Sale of land which has been used for farming for at least five years before the sale will be GST-free provided the purchaser intends to continue using it for a farming business.

A sale of land that is subdivided from land used for farming for at least five years before the sale is also GST-free if:

1. the purchaser is an 'associate' of the vendor;
2. the land is potential residential land; and
3. the consideration is less than the land's GST inclusive market value.

Associates include relatives, business partners and others associated with the vendor through family trusts and companies.

In light of the GST exemptions, residential property developers need to decide whether they need to make changes to achieve a more tax efficient structure.

For more information on GST and property development, please contact Gavin McInnes on 3009 8444 or g.mcinnes@rostroncarlyle.com.