Hi,
We are planning to buy a residential property, reovate and sell within 12 months. We are encouraged by Steve's quick cash strategy but this is our first time to try like this.
The intention of this transaction is businesslike and I do not think we can get 50% CGT discount even if we have to be holding 12 months. The investment body would be a company.
My understanding is when we purchase a residential property, there's no GST on the top of the purchase price but when we sell we have to add GST as they are business transaction. Is this right??
Below is an example.
If we purchase 300k property, purchase cost 15K (4%), reno 30K (including GST), then sell at 400K, we have to pay $36,363 as GST to ATO? We have to add holding cost and sales cost which would be another 30K. We can hardly make any profit.
I must be wrong…
I'd appreciate somebody give us how it works and how we should budget.
Definately confused.
CGT is based on the profit. Difference between the net sale price and the original purchase price plus stamp duty adjustment, renovation costs etc.
Based on your figures above and ignoring sale costs etc you would pay CGT on $55K being $400K – $300K – $15K – $30K.
Bit of a difference.
Richard Taylor | Australia's leading private lender
Hi Qlds007,
Thank you for your reply. I may not have been clear. My main question is GST, not CGT capital gain tax.
So far, we bought investment properties (not many) to hold. We have never tried buy, reno and sell.
My question is when you sell the property after reno, if you have to include GST in the sale price. As we purchse a propery to sell in the near future, this is a business transaction. In that case, I assume ATO expect to get GST.
Or I can simply ignore GST for this transaction……..
IF GST is payable it may be payable on the Margin scheme subject to your original purchase contract reflecting it was purchased this way.
Normally there is no GST payable on Residential property however if the property was purchased using a Company structure as part of an overall business of renvoating and devleopment this will not be the case.
Richard Taylor | Australia's leading private lender
Hi Qlds007,
Thank you for your advice. It seems if we buy, reno and sale using a company we may have to pay GST. This means we may not be able to make any profit.
I'm glad to know before jumping in this invetment plan.
Thanks.
My understanding is if the margin scheme applies, then 1/11th of your purchase price is deemed to be GST,
so sale $400 = $36,363 GST
GST credits – margin scheme $27,272
GST paid on purchase costs (NB stamp duty won't have GST)
GST paid on reno costs $30K = $2727
GST paid on selling costs
so net GST will be about $6K
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