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  • Applying GST to property

    If you supply property, and you are registered or required to be registered for GST, the sale may be:

    • taxable – 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 – 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 – 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 – a combination of any of the above.

    Note: When we say 'supply' we mean a sale, lease, transfer of rights, or similar dealings in property.

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    Registering for GST when dealing in property

    Even if you are not in business, if the turnover from your property transactions and other transactions are more than the GST registration threshold and your other activities are regarded as an 'enterprise', you are required to register for GST. Generally, if you only receive residential rent you won't be required to register for GST.

    Your activities may be regarded as an enterprise if, for instance, you buy property with the intention of immediate resale at a profit, or develop property to sell. Even a one-off property transaction may be an enterprise.

    Generally, you are not carrying on an enterprise if your property transactions are for private purposes, such as constructing or selling your family home.

    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. You may also be entitled to claim GST credits for some of the things you acquired to develop the property.

    You do not include any of the following property 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.

    Once you are registered for GST you:

    • include GST in the price you charge for your taxable supplies of goods and services (including certain property transactions)
    • may be eligible to claim credits for the GST included in the price of goods and services you buy for your business.

    See also:

    Media: GST registration and property development Link (Duration: 00:38ss)

    Contract of sale

    A contract should not simply state that the transaction is 'subject to GST' as this does not clarify whether the contract price includes or excludes GST.

    If GST is applied to a property transaction by the vendor, contracts should include either:

    • a clause that recognises the contract price includes GST
    • a clause that requires the purchaser to pay GST in addition to the contract sale price
    • a clause that specifies whether the GST (if any) has been determined by reference to the margin scheme. You may also have a separate written agreement that the margin scheme is being applied to the sale.

    Consideration should also be given to any clauses that limit the liability of either the vendor or purchaser if the GST treatment included in the contract is later found to be incorrect.

    Receiving a settlement adjustment

    If you are registered, or required to be registered for GST, when you sell a property you may receive adjustments for costs such as council and water rates. These form part of the settlement amount on which GST is calculated and will affect the amount you receive from the purchaser.

    These adjustments are part of the amount payable for the property and you must include them on your activity statement at G1 and take them into account when determining the amount GST to include at 1A.

    See also:

    • GSTD 2006/3 Goods and services tax: are settlement adjustments taken into account to determine the consideration for the supply or acquisition of real property?

    Claiming GST credits when you purchase property

    You can claim an input tax credit for any GST included in payments for expenses you made for your GST-registered business. We will refer to this as a 'GST credit'.

    You can generally claim a GST credit if you purchase property or land for your enterprise under a standard land contract, providing GST was included in the sale price. You can claim this credit on your 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 or construct 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
    • 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.

    You also cannot claim GST credits when purchasing the family home, as this is a private expense.

    Your entitlement to a GST credit ends four years from the due date of the activity statement for the reporting period in which the credit is claimable.

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    GST withholding for certain taxable supplies of property from 1 July 2018

    There have been law changes on certain property transactions starting on 1 July 2018.

    The property transactions affected are taxable supplies of new residential premises or potential residential land. Contracts for these transactions entered into before, on, or after 1 July 2018 are impacted by the changes. There is transitional relief available for suppliers and purchasers that have entered into contracts before 1 July 2018.

    Instead of paying the full contract price to the GST registered supplier (for example, vendors, sellers, property developers) at settlement, a purchaser is now required to withhold an amount from the contract price and pay that amount directly to us.

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    Making a GST adjustment for a property transaction

    An adjustment may need to be made on your activity statement if your actual use of the property has changed from its intended or previous use. An adjustment is a change that increases or decreases your net GST liability for a reporting period.

    There are two types of adjustments:

    • increasing adjustments – which increase your net GST liability for a reporting period
    • decreasing adjustments – which decrease your net GST liability for a reporting period.

    You may need to make a GST adjustment on your activity statement if you have bought, sold or rented a property and your actual use of the property is different to your intended use. Events that may trigger a GST adjustment include:

    • where you have claimed GST credits on the construction of new residential premises that you intend to sell but then rent them to tenants prior to its sale because the property market prices have fallen and you have been unable to sell the premises
    • moving into new residential premises and occupying it privately, while still trying to sell the premises
    • purchasing the property as part of a business sold to you GST-free as a going concern, but you are using the property for a purpose other than to make taxable sales or GST-free sales
    • purchasing a residential rental property as part of the acquisition of a GST-free going concern and you intend to keep renting the premises
    • purchasing farmland GST-free but you intend to use part of the land for an activity that involves making supplies that are not solely taxable or GST-free.

    Calculating adjustments

    To be able to calculate your adjustments, you will need the following information:

    • what you purchased
    • when you made the purchases
    • the GST-exclusive value of each of your purchases
    • what GST credits you claimed when you made the purchases
    • the tax period in which you claimed the GST credits on your purchase
    • any previous adjustments you have made relating to the purchases
    • any details of you actively marketing the property for sale (for example, the listing agreement with your real estate agent or advertising material)
    • a reasonable estimation of the selling price (if the property has not sold)
    • what you have used the residential property for, including the period for which you have rented the premises or used the premises for private purposes
    • the amount of any rent you received
    • the date you sold the property, and the amount you sold it for.

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    Cancelling GST registration

    If you cancel your GST registration after purchasing things (for example, property, building materials, construction services, and so on) for which you claimed GST credits, you may need to make an increasing GST adjustment on your final business activity statement to repay some of those GST credits.

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    Record keeping

    You can keep your accounting records in either paper or electronic format. Regardless of the format you choose, you must keep your record for five years.

    When dealing in property transactions, we recommend you keep all relevant documentation to support your reporting obligations, such as:

    • contracts of sale
    • records of any calculations you made (such as those used under the margin scheme)
    • any other documentation that supports the way you have applied the law.

    Any calculations you make must be fair and reasonable in your circumstances.

    If you find you made a mistake relating to property transactions that you did not report, you can let us know by making a voluntary disclosure rather than revising your activity statement.

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    Tax invoices

    When you purchase property and you intend to claim GST credits for your purchase, you must make sure you obtain a tax invoice for the sale. You cannot claim GST credits without supporting documentation.

    A tax invoice can be requested if all of the following apply:

    • the vendor is registered, or required to be registered, for GST
    • a sale, or part of a sale, is taxable
    • the margin scheme has not been applied.

    Contracts for the sale of property are not normally valid tax invoices. You will also need to check that the contract price includes GST.

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      Last modified: 09 Aug 2018QC 21960