Show download pdf controls
  • Registering for GST when dealing in property

    You may be required to register for GST even if you are not a business if:

    • the turnover from your property transactions and other transactions are more than the GST registration threshold
    • your activities are regarded as an 'enterprise' for example, if you buy land with the intention of developing it for immediate resale at a profit.

    Even a one-off property transaction may be an enterprise.

    Generally:

    • if you only receive residential rent you won't be required to register for GST
    • 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
    http://tv.ato.gov.au/ato-tv/media?v=bd1bdiunnj8bs8External Link (Duration: 00:38ss)

    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.

    On this page:

    See also:

    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 one of the following clauses:

    • 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 not 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.

    See also:

    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.

    See also:

    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.

    See also:

    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.

    See also:

    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.

    See also:

    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.

    See also:

    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. You may be required to pay this GST amount directly to us under GST at settlement.

    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.

    See also:

    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.

    Consider your GST at settlement notification requirements when selling existing residential premises.

    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.

    Authorised by the Australian Government, Canberra

      Last modified: 01 Nov 2018QC 21960