- jmielleParticipant@jmielleJoin Date: 2005Post Count: 31
I’ve been advised by my accountant that if I subdivide one of my properties and build a unit at the back, the unit that I build becomes GST applicable. Can anyone shed some light on this? I was always under the assumption that residential was GST free.Dan42Member@dan42Join Date: 2008Post Count: 619
You are right in that normally residential property does not attract GST, but if you sell new residential property, and you doing this as a business, you are required to pay GST. Basically, if you are in the business of building residential property, and your turnover is more than $75,000, you are required to register for GST.
The GST can be calculated using a system called the margin scheme, which reduces the amount of GST that you pay on sale.
Bought land for $300,000 (assuming purchased after 1 July 2000)
Development Expenditure $250,000 (you can claim GST credits on these purchases if you are registered for GST)
Sold for: $650,000
Your GST under the margin scheme would be: (sales price less cost price) / 11
= $(650,000 – 300,000) / 11
= $31,818Dan42Member@dan42Join Date: 2008Post Count: 619
Also, on the contract of sale, you must notify the purchaser that you have chosen to apply the margin schem, otherwise you could be up for the full 1/11th of the sale price.jmielleParticipant@jmielleJoin Date: 2005Post Count: 31
Thanks for clearing that up. I suppose I’d be better off selling the land (Subdivision) rather than building on it.