• GST and property

    Many people are actually carrying on an enterprise when making property transactions, but do not register for goods and services tax (GST) when they are required to do so. Even with a one-off transaction, you may still be required to register for GST because your activity, or activities, in carrying out this one-off property transaction may constitute an enterprise.

    If you are dealing with property – for example, you buy, sell, lease or develop – you may be considered to be conducting an enterprise. If this is the case and your turnover from these activities is more than the GST registration threshold, you will be required to register for GST.

    See also:

    About this guide

    This guide will help you work out how GST applies to property sales and other transactions involving the following:

    It includes further information on:

    In this guide, property includes any of the following:

    • land
    • land and buildings
    • an interest in land
    • rights over land
    • a licence to occupy land.

    You apply GST differently to property, depending on whether it is either:

    • commercial premises
    • residential premises
    • commercial residential

    When you sell a property, the sale may be:

    • taxable – this means you are liable for GST on the sale, and you can claim GST credits for anything you purchase or import to make the sale (subject to the normal rules on GST credits)
    • GST-free – this means you are not liable for GST on the sale, but you can claim GST credits for anything you purchase or import to make the sale (subject to the normal rules on GST credits)
    • Input taxed – this means you are not liable for GST on the sale and you cannot claim GST credits for anything you purchase or import to make the sale
    • mixed – this is a combination of any of the above.

    Your property transactions may need to be included in your GST registration turnover calculation.

    See also

    Residential premises

    Residential premises include houses, units and flats. It does not include vacant land.

    Properties are residential premises if they can be occupied, are occupied, or are intended to be occupied as residences.

    See also:

    • GSTR 2012/5 Goods and services tax: residential premises

    In addition to how GST applies to new residential premises and existing residential premises, you also need to know how it applies to rent or bonds from residential premises.

    Find out about:

    New residential premises

    Residential premises are new when any of the following apply:

    • they have not been sold as residential premises before
    • they have been created through substantial renovations
    • new buildings replace demolished buildings on the same land.

    Residential premises are no longer new residential premises if they have been continuously rented for five years after first becoming new residential premises. However, the premises may still be considered new residential premises, even if they have been rented out continuously for five years if at the same time they were being actively marketed for sale.

    You can claim GST credits for things you purchase to make a sale of new residential premises (subject to the normal rules on GST credits), and you are liable for GST on the sale.

    If you sell residential premises that are no longer new – for example, they have been continuously rented for more than five years – your sale is input taxed.

    If GST applies to your sale of new residential premises, you generally pay GST of one-eleventh of the sale price. You may be eligible to use the margin scheme to work out the GST you must pay – see Margin scheme for eligibility.

    Renting new residential premises before you sell them

    If you build new residential premises for sale, you can claim GST credits for purchases made for construction purposes.

    If you rent the new premises while you are planning to sell them, you will need to adjust the amount of GST credits you have claimed.

    You must show you intend to sell the premises – one way of showing this is by actively marketing the premises for sale.

    Example: Renting before sale

    Helki plans to sell a new residential property she has built.

    The property has been on the market for some months, so Helki decides to both:

    • rent it out
    • continue to actively market the property for sale.

    Helki must adjust the amount of GST credits she previously claimed because her use of the property has changed from the way she originally intended – that is, she originally intended to sell new residential premises. However, she is now renting out these premises while still actively trying to sell them – this is known as a change in creditable purpose, so Helki is not entitled to the full GST credits.

    End of example

    New residential premises – off the plan

    An off-the-plan purchase occurs when you enter into a contract to purchase new residential premises before the construction is completed. At this stage, you are purchasing a contractual right to have the premises built.

    Generally, you pay a deposit and sign a contract with the developer. You pay the balance of the purchase price on settlement.

    On settlement, you are purchasing new residential premises and the purchase price will include GST.

    However, if you sell the contractual right before settlement, you are not selling new residential premises, and GST may apply if your sale of the contractual right forms part of your business' transactions.

    The activities involved in selling an off-the-plan property may constitute an enterprise in its own right and the proceeds of the sale may form part of your turnover in working out whether the GST registration threshold is met.

    See also:

    • GSTR 2009/4 Goods and services tax: new residential premises and adjustments for changes in extent of creditable purpose
    • GSTR 2003/3 Goods and services tax: when is a sale of real property a sale of new residential premises?
    • GSTR 2000/24 Goods and services tax: Division 129 – making adjustments for changes in extent of creditable purpose

    Existing residential premises

    You cannot claim GST credits for anything you purchase for the purpose of making a sale of existing residential premises (that is, residential premises that are not new), and you are not liable for GST on the sale.

    If you sell residential premises, your sale is input taxed unless the property is new – see New residential premises.

    If you sell existing premises that, based on their physical characteristics, are used in part for residential accommodation and in part for commercial purposes, GST may apply proportionately on the sale.

    If you purchase existing residential premises, the sale from the vendor to you is input taxed, so you cannot claim a GST credit on the purchase.

    Example: Mixed supply

    Estella sells a two-storey building that has commercial business premises downstairs (a taxable supply) and residential premises upstairs (an input-taxed supply). This is a mixed supply.

    End of example

    Rent or bonds from residential premises

    Rent

    If you lease residential premises you need to consider both that:

    • you are not liable for GST on the rent you charge
    • you cannot claim GST credits for anything you purchase or import to lease the premises.

    Bonds

    If you receive a bond or security deposit for leased residential premises, you need to consider both that:

    • you are not liable for GST on the bond or security received
    • you cannot claim GST credits for anything you purchase or import to lease the premises.
    • Last modified: 05 Jul 2016QC 21960