Building and construction – residential premises
If you build new residential premises for sale:
- you're liable for GST on the sale
- you can claim GST credits for your construction costs and any purchases you make related to the sale (subject to the normal rules on GST credits).
If GST applies, you generally pay GST of one-eleventh of the sale price. But if eligible, you can work out your GST liability using the margin scheme, under which your GST liability is one-eleventh of the margin on the sale of the property, rather than one-eleventh of the total selling price.
Residential premises include houses, units and flats that are occupied or can be occupied as residences. It does not include vacant land. 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.
However, residential premises are generally no longer new residential premises if they have been continuously rented for five years after first becoming new residential premises. In this case, the sale of the property after being rented out is input taxed.
If you claimed GST credits on the construction costs and related purchases, you may have to make one or more adjustments that effectively reverse these credits, as you are not entitled to GST credits for things purchased to make input taxed supplies.
New residential premises rented out continuously for five years or more may still be considered new residential premises if they have been held for the dual purpose of sale and rent.
If you rent out the new premises while you are planning to sell them, you'll need to adjust part of the GST credits you claimed. You must show you intend to sell the premises. Actively marketing the premises for sale is one way of showing this.
New residential premises off-the-plan
An off-the-plan purchase occurs when the buyer enters into a contract to purchase new residential premises before construction is completed. At this stage the buyer is purchasing a contractual right to have the premises built.
Generally, the buyer pays a deposit and signs a contract with the developer, paying the balance of the purchase price on settlement. On settlement, the buyer is purchasing new residential premises and the purchase price includes GST.
However, if you as the 'buyer' sell the contractual right before settlement you're not selling new residential premises, and GST will apply if the sale of the contractual right is made in the course of your GST registered business.
The sale of an off-the-plan property may be an enterprise in its own right and may form part of the seller's GST registration turnover threshold.
If you build new residential premises for sale, you're liable for GST on the sale, and you can generally claim GST credits for your construction costs and purchases related to the sale.