• Residential premises

    The term 'residential premises' includes houses, units and flats (not an exhaustive list). It refers to residential premises that provide shelter and contain basic living facilities. It does not include vacant land.

    It should be noted that 'residential premises' and 'commercial premises' are separately defined in the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). While there may be some similar features, they are not the same.

    Properties are 'residential premises' if they can be occupied, are occupied, or are intended to be occupied as residences, or for residential accommodation, regardless of the term of occupation. If you are registered, or required to be registered for GST, you must pay GST on the sale of new residential premises you sell as part of an enterprise you carry on.

    You are not liable for GST if you sell residential premises that have been previously sold as residential premises. In this guide we refer to those types of premises as 'existing' residential premises to distinguish them from 'new' residential premises.

    If you construct new residential premises for one purpose and then use them in a different way you may have to make an adjustment to your GST credits. You do not pay GST on rent or bonds received from residential premises.

    On this page:

    See also:

    New residential premises

    You can claim GST credits for purchases made in constructing new residential premises for sale.

    'New residential premises' is a term that applies to properties where any of the following apply:

    • they have not previously been sold as residential premises
    • 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 were built for sale but are then used solely and continuously for rental for a period at least five years. If the premises are actively marketed for sale while they are rented, they will not be solely used for an input taxed supply during that period and will continue to be new residential premises.

    See also:

    • GSTR 2003/3 Goods and services tax: when is a sale of real property a sale of new residential premises?

    Selling new residential premises

    When you sell new residential premises, you must:

    You may be entitled to claim GST credits for things you purchase to make the sale.

    If you sell residential premises that are no longer new – for example, they were used solely and continuously for rental for more than five years – they are treated as existing residential premises.

    You generally pay GST of one-eleventh of the sale price.

    Margin scheme

    If you are eligible to use the margin scheme (a GST concession for taxable supplies of property) you only pay GST of one-eleventh of the margin. The margin is the difference between the price you sell the property for and the applicable cost base.

    There are special rules you need to be aware of when calculating your margin scheme cost base. This depends on either:

    • when the property was acquired (that is, before or after 1 July 2000)
    • how the property was acquired (for example, from an associate, inherited, as part of a GST-free going concern).

    We have a range of guidance products and public GST rulings to help you apply the margin scheme to your circumstances.

    See also:

    Change in creditable purpose

    If there is a change in your extent of creditable purpose of a thing purchased to use in carrying on your business (that is, the extent to which you acquired the thing to make taxable or GST-free supplies) you may be required to adjust the amount of GST previously claimed on that purchase.

    For example, you will need to make an adjustment if you claimed GST credits on constructing new residential premises you intend to sell, but then rent them out or live in them instead.

    When this occurs there has been a change in the actual use of the premises, so there has been a change in your extent of creditable purpose. That is, you are going to make input taxed supplies of rent, or are going to use the residential premises for a private purpose and not for business purposes.

    In these situations, you must make a GST adjustment on your activity statement in the relevant adjustment period, and repay some of the GST credits you have claimed on purchases such as the construction costs and or the costs involved with purchasing the property.

    Conversely, if you construct new residential premises with the intention of renting them, but then sell them instead, you make a decreasing GST adjustment to recoup some of the GST credits that you did not originally claim.

    Example: Renting apartments originally intended for sale

    Bob constructs six residential units to sell as part of his business. Bob claims GST credits for all his purchases that relate to constructing the six units.

    Bob sells four of the units shortly after they are completed but is unable to sell the other two. Bob decides to stop marketing the two remaining units for sale and start renting them out.

    As he is now making input taxed supplies of rent, Bob's original intent to sell the new residential premises as taxable supplies (that is a fully creditable purpose) has changed.

    Depending on how many adjustment periods each acquisition has, Bob may need to make an increasing adjustment in relation to the GST credits he claimed for the development of the two rented units, at the next applicable adjustment period.

    End of example

     

    Example: Selling apartments originally intended for rent

    Kevin is a property developer who is registered for GST. He subdivides a property into two lots and builds a residential unit on each lot. Kevin intends to sell one of the units (Unit 1A) and rent out the other (Unit 1B) for at least 10 years. As he has always planned to rent out one of the units, Kevin only claims GST credits in relation to the construction of Unit 1A and pays GST on the sale of that unit.

    Three months after Kevin originally rents out Unit 1B he gets an offer to buy the property, which is too good to refuse. Kevin decides to sell Unit 1B rather than rent it out. GST will be payable on the sale of the premises as they are still considered 'new residential premises'. As Kevin has used the premises differently to his original plan (that is, he will make a taxable sale of the premises instead of using the premises to make an input taxed supply of residential rent), he will need to make a decreasing adjustment to recover some of the GST credits he did not claim.

    End of example

    If you build a property for sale but then decide to rent it out while you are trying to find a buyer, you will need to keep records to show that you are holding the property for a 'dual purpose' – that is, you intend to rent the property while trying to sell it by actively marketing it for sale.

    Example: Actively marketing a property while renting

    Helki builds a new residential property with the intention of selling it. Helki claimed full GST credits on the acquisition of the property and the construction costs.

    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.

    Because Helki's use of the property has changed from the way she originally intended, she has a change in extent of creditable purpose and has to make an adjustment to repay some of the credits she claimed.

    End of example

    See also:

    Buying off the plan

    An off-the-plan purchase occurs when you enter into a contract to purchase new residential premises before 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, GST may apply to that sale.

    The activities involved in selling an off-the-plan property may constitute an enterprise, in which case you may need to register for GST.

    Existing residential premises

    You cannot claim GST credits for anything you purchase to sell existing residential premises (that is, residential premises that are not new), and you are not liable for GST on the sale. If you sell existing premises where part of the building contains residential premises accommodation and part is commercial premises (mixed supply), GST may apply proportionately to the commercial part 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 a veterinary surgery downstairs (a taxable supply) and residential premises upstairs (an input-taxed supply). This is a mixed supply and GST will apply to the taxable part.

    End of example

    Rent and bonds from residential premises

    Generally, rent and bonds are not subject to GST, so if you lease residential premises, or receive a bond or security deposit for leased residential premises, you:

    • are not liable for GST on the rent you charge or on the bond or security received
    • cannot claim GST credits for anything you purchase or import to lease the premises.
      Last modified: 08 Sep 2017QC 21960