Common GST errors and property
Common errors may occur when you:
- claim credits for purchasing property
- use the margin scheme
- rent new residential premises that you constructed to sell
- sell new residential premises that have only been rented within five years of being constructed
- receive settlement adjustments
- sell a going concern.
Registering for GST when dealing in property
Many people are actually carrying on an enterprise when making property transactions but do not register for GST when they are required to do so. If you do not register for GST and you are required to do so, you may have to pay GST on the sales you have made since the date you became required to register - even if you did not include GST in the price of those sales. Penalties and interest may also apply.
Even if you are not in business, you may still be required to register for GST as one-off property transactions may be an 'enterprise'.
If you buy property with the intention of immediate resale at a profit or develop property to sell, you may be considered to be conducting an enterprise. If your turnover from these activities is more than the GST registration threshold you may be required to register for GST.
Generally, you are not considered to be carrying on an enterprise if your property transactions are for private purposes; for example, you are constructing or selling your family home.
If your property activities are considered to be an enterprise and you need to register for GST, you do not include any of the following activities when calculating your GST turnover for registration purposes:
- the sale of a residence that is not new residential premises
- sales you make that are for no payment (unless they are made to an associate)
- other property sales you make that are private and not connected to your enterprise (such as your family home)
- residential rental income.
If you construct new residential premises, and you sell it in the course of your enterprise, it will be included in your GST turnover calculations to work out if you should register.
New Residential premises
Premises that are new residential are those that:
- have not been sold as residential premises before
- have not been rented out continuously for five years since they have been constructed
- have undergone substantial renovations
- -have been built to replace demolished premises on the same land.
- Am I in business?
- MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number
- Registering for GST
- GSTR 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnovers.
Claiming GST credits when you purchase property
Often GST credits are claimed incorrectly on common property transactions.
Generally, under a standard land contract, you can claim a GST credit if you purchase property or land for use in your enterprise (if GST was included in the sale price and the margin scheme was not used). Regardless of whether you account for GST on a cash basis or non-cash basis, you can claim this credit on the activity statement for the tax period when settlement occurs.
You cannot claim GST credits when you:
- are not registered (or required to be registered) for GST at the time of purchase
- have only paid for the deposit under a standard land contract
- purchase an existing residence
- purchase a property as a private sale
- purchase new residential property for rental purposes
- purchase the property as part of a GST-free supply of a going concern or GST-free farmland
- purchase the property or land under the margin scheme, there must be an agreement in writing that the margin scheme is being used
- have purchased residential premises, such as a room, unit or an apartment which you lease to a business that then supplies it as hotel accommodation with other facilities.
If you are entitled to claim GST credits, you must hold a valid tax invoice issued by the seller when you lodge your activity statement. You cannot use a settlement statement or a contract of sale in place of a tax invoice to claim GST credits.
There is a four-year time limit in claiming GST credits.
Time limits on GST refunds.