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.
Hi Joel,
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.
eg
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: $650,000Your GST under the margin scheme would be: (sales price less cost price) / 11
= $(650,000 – 300,000) / 11
= $31,818Also, 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.
Thanks for clearing that up. I suppose I’d be better off selling the land (Subdivision) rather than building on it.
Well, you'd still be caught up under the margin scheme anyway. The only difference being your exposure to borrowing and the duration of the project.
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