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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.

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    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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      Last modified: 15 May 2018QC 21960