All Topics / Value Adding / GST Charged on reno’s

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  • Profile photo of Terry DoddsTerry Dodds
    Member
    @terry-dodds
    Join Date: 2006
    Post Count: 1

    Hi Guys

    Was hoping someone could shed a little light on a stratergy I am using. I am leap froging from property to property adding value as I go and then on selling the propertys. This was all fine until I went to an accountant to make sure I was all on track as far as tax goes. A believed that you do not pay tax on the sale of your principle place of residence. The accountans was trying to explain to me that because this was my only sourse of income, it would be seen as a business and I would have to Pay income tax on any profit I made and not only that, I would also have to be registered for and charge GST on what I was doing as the value of the houses is more than 75,000. What is confusing me is the way the GST would be charged. The income tax makes sence to me, But how does the GST get charged. Is it 10% of the value of the house? or is it charged on my time in fixing up the property? If it were 10% of the value of the house, No one would be able to buy it off of me as the price would have to be so much to cover the GST. Do you see my problem? If any one could help it would be much appriciated.

    Terry Dodds

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    GST is very confusing isn't it! I think GST only applies to residential properties if they are new – ie being sold for the first time, otherwise they are exempt.

    BTW, there are a lot of good articles on GST, CGT etc at http://www.bantacs.com.au

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of Scott No MatesScott No Mates
    Participant
    @scott-no-mates
    Join Date: 2005
    Post Count: 3,856

    It is a specalist area in new works however, in the case of residential, generally, regardless of what has been carried out and to whom you are selling it is the vendor who wears the gst component ie if you refurbish, you have paid the gst in the purchase price of the labour and materials used and it stops there. The purchase buys at the advertised price blissfully unaware of the amount of gst that you may have paid.  This differs in commercial applications as the sale price is generally exclusive of gst as the premises can be sold as a 'going concern' is there is a business as the tenant and the useage will continue to be commercial (there are five requirements to be met for the gst exemption).
    Speak to a tax accountant for clarification

    Profile photo of BuildaBuilda
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    @builda
    Join Date: 2008
    Post Count: 8

    GST is the novice developers end of project nightmare.  

    There are many that thought they had scraped out of the deal with a 10% profit and feeling very chuffed, only to be hit with a 10% tax bill on the sale price.  Sure, you can claim your GST credits back but my understanding is that you need to have been registered for GST before commencement.

    At the end of the day, if you make a profit then you will pay GST – best budget for it up front.  Understand also that some legal and property costs are GST exempt, but not many.

    Profile photo of Scott No MatesScott No Mates
    Participant
    @scott-no-mates
    Join Date: 2005
    Post Count: 3,856

    You pay gst  regardless of the profitability – you may or may not pay cgt.

    Profile photo of newbi2newbi2
    Member
    @newbi2
    Join Date: 2008
    Post Count: 227

    Speak to your accountant about the margin scheme

    Profile photo of Jase and FlicJase and Flic
    Participant
    @jase-and-flic
    Join Date: 2004
    Post Count: 190

    If your accountant is unsure of this (ie if they don't handle a lot property developer clients) then do some accountant hunting and grab yourself a more specialized one.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    I never like to disagree with Terry but for once i have to:

    I think GST only applies to residential properties if they are new – ie being sold for the first time, otherwise they are exempt.

    This is actually incorrect. The definition in the Tax Act when it comes to 2nd hand properties relates to "Substantial Renovation" and causes many a refurber to come unstuck.

    As someone who with my Building partner has bought, strata titled, renovated and then onsold old blocks of units around Brisbane for the last 12 years I have come across this on dozens of ocassions. We obtained a Private Ruling and I would strongly recommend anyone doing it for a living does likewise.

    The Margin Scheme will certainly help you but does little to aid profitability if you havent factored in the 10% GST and are relying on this to determine the viability of the deal. 

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

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