When buying or selling a property, especially one of a commercial nature, it is important to consider any GST implications that may arise in addition to your other tax obligations. The potential to attract ten percent (10%) on the purchase price of a property deserves consideration.

GST on the sale of a property

When selling a property, the sale may fall under one of three broad supply categories:

  1. Taxable supply – the Seller is liable for GST on the sale and can claim GST credits for anything purchased or imported to make the sale (ie. the GST paid on Real Estate Agent fees);
  2. GST-free supply – the Seller is not liable for GST, but can still claim GST credits for anything purchased to make the sale;
  3. Input Taxed supply – the Seller is not liable for the GST on the sale and cannot claim any GST credits.

Steps to determine under which category your sale falls

To determine the application of GST on your property the following needs to be explored:

  1. Are you registered for GST or required to be registered for GST?
  3. If the property was bought with the intention to sell at a profit or develop the property to sell, you may be considered to be conducting an enterprise when selling the property. If the proceeds from the sale exceed the threshold, presently $75,000, then there may be a requirement to register for GST. This can even apply to ‘one-off’ property transactions where it can be shown that the Seller engaged in an adventure in the nature of trade.
  5. One example may be where a large block of land is purchased with the intent to subdivide and the subdivided blocks are sold at a profit shortly after the subdivision. These sales may be deemed as being part of a trading activity as opposed to an investment activity and therefore attract GST.
  7. In any case, it is important to realise that you do not need to be a developer to be caught by the GST provisions.
  1. Is the property a new residential premise?
  3. Generally, residential premises are considered an input taxed supply and are therefore exempt from GST. However, if the residential premise is considered ‘a new residential premise’, then it becomes a taxable supply and GST is applicable on the sale.
  5. The GST Act defines a new residential premise as one that:
    1. has not been sold as a residential premise previously;
    2. has been created through substantial renovations; or
    3. is a new dwelling that has replaced an existing dwelling on the same land.
  7. “Off the plan” sales and newly built homes are considered sales of new residential premises. Once the property has been continuously rented for five years, it ceases to be classified as ‘a new residential premise’.
  9. Commercial properties generally are taxable supplies but if you sell a property that is part of a GST-free sale of a going concern you are not liable for GST on the sale.
  1. Sale of a Going Concern
  3. To be classified as part of a GST-free sale of a going concern the following requirements must be met:
    1. The premises must be sold together with the assets and operating structure of the business or it is a tenanted, or partly tenanted building, where the property and all leases, agreements and covenants are included in the sale.
    2. The Buyer and Seller are both registered for GST purposes;
    3. The Buyer and Seller have both agreed in writing that the supply is one to be treated as a going concern.
  1. The Margin Scheme
  3. Generally, GST is paid on the full purchase price, however when using the Margin Scheme, GST is paid only on the difference between the price paid for the purchase of the property and its sale price.
  5. The Margin Scheme cannot be used if GST was paid when the property was purchased.

What this means for you

When purchasing or selling a property, people normally think of stamp duty, land tax and income tax implications, however potential GST implications should also be taken into account.

It is important to know if the sale of the property will attract GST, so that you can assess if you should be selling on a GST exclusive basis (so that the Purchaser pays the GST) or GST inclusive (so that you pay it, in which case the GST must be factored into the price as may be appropriate).

We strongly suggest that you obtain legal advice when entering into a contract for the purchase of any property, be it commercial or residential, as the GST concession or exemption needs to be clearly set out at the time of signing the Contract of Sale.

This article is intended to provide general information only and is not a substitute for legal advice. To obtain legal advice tailored to your situation please contact Rudstein Kron Lawyers on (03) 9519 9888.