If you are looking at selling or buying real estate you should think about any GST implications of the proposed transaction. The following are a few points you should think about, but if you believe GST may apply to your sale or purchase you should speak to your accountant, as he/she is the expert in this area.
Considerations for the Vendor in relation to Residential property
Most sales of residential property owned by private persons will not attract GST, even if the property is an investment.
GST may however apply if you run a business, are registered for GST or required to be registered and the property is considered a business asset. This could be the case for example if:
- You are an accommodation provider and rent the property out for holiday/short term rental; and
- You are a builder or developer and are selling a property that you have developed as part of your business.
Commercial property
If you own a commercial property and are registered or required to be registered for GST it is likely that the sale will be subject to GST.
The sale will be exempt from GST if you have one or several tenants in the property and are the Purchaser takes over the leases, but only if the Purchaser is also registered for GST by settlement. This is called a ‘going concern’.
Farming property
If you are a farmer and are registered or required to be registered for GST and you sell part or all or your farm land, GST will apply. The sale will however be exempt from GST if you have been using the land for farming for at least the last five years and the Purchaser intends to continue farming the land after settlement. For this exemption to apply the Purchaser does not need to be registered for GST.
What does it mean for me if my sale is subject to GST?
If your sale is subject to GST you will need to pay GST on the sale price of the property, generally being 1/11th of the total price paid by the Purchaser.
You can choose to sell the property ‘plus GST’, in which case the Purchaser must pay an additional 10% over and above the purchase price shown on the contract. You will then need to pay this amount to ATO when you lodge your next BAS statement.
Alternatively, you can choose to sell the property at a GST inclusive price. This means the Purchaser pays the amount shown on the contract, but you will then need to pay 1/11thof that to ATO as GST.
What is the margin scheme?
Under certain conditions you can elect to apply the margin scheme to the sale of a property you have developed. This means you will only need to pay GST on the ‘margin’, i.e. the difference between the costs of purchasing and developing the land and the sale price. If you think this could be an option for your sale you should speak to your accountant to find out if your sale is eligible for the margin scheme.
Considerations for the Purchaser
A property being purchased is sold ‘plus GST’
This means you will need to pay an additional 10% over and above the purchase price at settlement, provided the Vendor gives you a tax invoice for the price plus GST.
You will also need to pay stamp duty and land transfer fees on the purchase price plus GST, which will increase your overall costs of the purchase. You need to factor this in when you negotiate the price or apply for a loan.
If you are registered for GST at the time of settlement you will be able to claim the GST back once you lodge your BAS statement.
The property is sold as a ‘going concern’ or a ‘farming business’
If you are buying a property that is sold as a ‘going concern’ it is your responsibility to be or become registered for GST before settlement. If you are not registered for GST by settlement and the Vendor is then charged GST by ATO you will have to reimburse the Vendor for the GST paid.
If you are buying a property that is sold as a ‘farming business’ you will not need to be registered for GST, but you will need to meet the criteria of a ‘farming business’ for income tax purposes after settlement. Speak to your accountant about the requirements if you are buying farm land.
GST withholding regime
If you enter into a Contract for the sale or purchase of an ‘off-the-plan’ property after 1 July 2018 or have already entered into a Contract, but settlement takes place after 1 July 2020 this new regime will apply to your transaction.
From 1 July 2018 solicitors and conveyancers acting for Purchasers of off-the-plan properties will effectively become tax collectors, as they will need to withhold the GST payable on the sale and pay it to the ATO at or immediately after settlement.
If the Purchaser’s representative fails to withhold these funds ATO can demand payment thereof from the Purchaser after settlement.
This regime was introduced to circumvent ‘phoenixing’. In the past developers sometimes set up a company for the purpose of completing one specific development. As soon as the development was finished and the settlements had been completed, but before the next BAS statement was due, all the assets of the company would then be moved and the company wound up, with no GST remitted to ATO.
So, if you are selling off-the-plan land bear in mind that you will no longer have the benefit of the GST component of the purchase price between settlement occurring and you BAS statement being due.
If you are buying off-the-plan land and your final statement from your solicitor or conveyancer shows GST, even though your purchase was GST inclusive, this does not mean you paid the GST on behalf of the Vendor. It simply means that part of the money payable by you under the contract paid to ATO instead of to the Vendor.
If you want to know more about the GST implications of your sale or purchase, call our experienced property legal team.
