• Property contract and tax invoice – GST questions

    If you are a property professional, such as a solicitor or property conveyancer, the questions in this fact sheet will assist you to correctly account for goods and services tax (GST) when preparing contracts and issuing tax invoices relating to the sale/disposal of real property.

    Real property includes:

    • land and buildings
    • an interest in land
    • rights over land
    • a licence to occupy land.

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    Questions you should ask

    The questions you should ask are:

    Is the vendor registered for GST?

    GST can only apply to the sale of a property if the vendor is registered or required to be registered for GST purposes. As real property is generally supplied at the time of settlement, GST can only apply to that supply if the vendor is registered, or required to be registered, at that point in time.

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    Vendors carrying on an enterprise with a turnover at or above the GST registration threshold will be required to be registered for GST. It is noted that certain supplies such as input taxed supplies are not included in the GST turnover calculations.

    Property transactions (for example, selling, leasing or developing) made with the intention of making a profit, may be part of an enterprise. You will need to consider whether the:

    • vendor is conducting an enterprise even if the vendor is not normally in business
    • property transaction is a one-off, which may be the realisation of the capital asset rather than being made in the course of carrying on an enterprise.

    If the vendor is not registered for GST and is required to be registered, the vendor will have to pay GST on any taxable supplies made since the date it became required to be registered. This is the case even if GST was not included in the sale price.

    Find out about:

    • MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number

    What is the correct GST treatment of the property transaction?

    When a property is sold, consider whether the sale is:

    • taxable – if the sale is taxable, GST applies on the sale, and GST credits can be claimed for anything purchased or imported to make the sale (subject to the normal rules on GST credits)
    • GST-free – if the sale is GST-free, GST does not apply on the sale but GST credits can be claimed for anything purchased or imported to make the sale (subject to the normal rules on GST credits)
    • input taxed – if the sale is input taxed, GST does not apply on the sale (GST credits cannot be claimed for anything purchased or imported to make the sale)
    • mixed – this is a combination of any of the above.

    Are any special rules being applied?

    The correct GST treatment must be applied to the sale of the property. There are a number of specific treatments and special rules that affect how GST applies to a property transaction:

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    Are the clauses in the contract appropriate for the GST treatment?

    The contract should not simply state that the transaction is 'subject to GST' as this does not clarify whether the contract price is inclusive or exclusive of GST.

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

    • a clause that recognises the contract price is inclusive of GST
    • a clause that requires the purchaser to pay GST in addition to the contract sale price
    • a clause that clarifies whether the GST (if any) has been determined by reference to the margin scheme.

    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.

    The GST position in the contract should also be considered on a case by case basis.

    Are there any settlement adjustments?

    Settlement adjustments (such as council rates, land tax and other outgoings such as water rates) under a contract of sale of property form part of the settlement amount on which the GST payable is calculated.

    Such settlement adjustments need to be considered and incorporated within contracts and in tax invoices.

    Find out about:

    • 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?

    Is a tax invoice required to be issued?

    A tax invoice should only be issued if all of the following apply:

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

    If all of the above apply, a tax invoice must be issued by the vendor within 28 days of receiving a request for a tax invoice from the recipient of the supply, unless it was issued before a request was made.

    A settlement statement or a contract of sale for real property is generally not a demand for payment. Accordingly, these documents may not be invoices. However, a settlement statement or contract of sale for real property may be a tax invoice if it contains the information necessary to meet the requirements for a tax invoice.

    Are necessary details included on the tax invoice?

    A tax invoice for a property transaction should contain enough information to enable the following to be clearly ascertained:

    • that the document is intended to be a tax invoice (for example, the document includes the words 'tax invoice' or 'GST invoice')
    • the identity and Australian business number (ABN) of the vendor disposing of the property
    • the purchaser's identity or ABN for supplies with a price of $1,000 or more
    • what is supplied – for example, the address of property being sold (or other such identifying information)
    • the extent to which the property is a taxable supply
    • the date of issue
    • the price of the supply by the vendor
    • the amount of GST payable.

    For a purchaser to claim GST credits, a valid tax invoice must be issued by the vendor and held by the purchaser at the time they lodge their activity statement.

    If you are a purchaser and you have a document that doesn't contain all of the information necessary to meet the tax invoice requirements, you may choose to treat this document as a tax invoice if you can get the missing information from additional documents the vendor issued to you.

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      Last modified: 06 Jul 2016QC 24926