All Topics / Legal & Accounting / GST on a new residential dwelling

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  • Profile photo of fredo_4305fredo_4305
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    @fredo_4305
    Join Date: 2009
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    Hi all I am in the processing of conducting a subdivision. What is the ruling on GST and new residential dwellings? Do you need to pay GST on the sale of the property or is this only the case if the sale of the property is your main source of income.

    Profile photo of Scott No MatesScott No Mates
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    @scott-no-mates
    Join Date: 2005
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    You are generally liable to remit 1/11th of the contract value as gst. But….. If you apply the margin scheme it will be a lot less – see your accountant yesterday.

    Profile photo of Dan42Dan42
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    @dan42
    Join Date: 2008
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    fredo_4305 wrote:
    Hi all I am in the processing of conducting a subdivision. What is the ruling on GST and new residential dwellings? Do you need to pay GST on the sale of the property or is this only the case if the sale of the property is your main source of income.

    Generally you would have to remit 1/11th of GST on the sale, or 1/11th of the margin if you use the margin scheme. You can also claim GST credits on expenses during the building process.

    If you wish to use the margin scheme, it must be mentioned in the sales contract. See your accountant before you present a contract to sell.

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

    ATO has a new online 'calculator' on GST
    https://expertsystems.ato.gov.au/scripts/net/GSTProperty/Introduction/GSTPropertyIntro.aspx?Task=da80fe99-4af2-4f1c-87e8-e0c361999fb6&NavGraph=Home&View=HomeView&PID=68&ms=Tax%20Professionals

    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 AALLIIAALLII
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    @aallii
    Join Date: 2012
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    If you do not use the margin scheme or wasnt included in  your contract of sale, does this mean that the credit which would ordinary be available for the cost of land (i.e 1/11th of cost of land) will not be available anymore?

    Also my understanding is as follows:
    Use of margin scheme –
    I.e. you buy land for 500k, develop units and sell total number of units at $2m.
    Margin = 1.5mill therefore GST = 1.5/11 = 136,364
    Now although this is required to be remitted, you can claim further GST credits from the cost of developments, consulting, and demolition etc… Therefore net amount required to be remitted could be potentially much lower i.e. 20k.

    Am I on the right track?

    I am reading this document – http://www.ato.gov.au/content/downloads/bus70665nat15145072010.pdf

    From that I cannot tell what the case would be if one does not use the margin scheme, however its good source to understand the margin scheme in plain english.

    Profile photo of Dan42Dan42
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    @dan42
    Join Date: 2008
    Post Count: 619

    Yes, you are on the right track.

    If you claimed GST on the purchase of the land, then the margin scheme is not available to you.

    Your other figures seem correct. GST using the margin scheme is calculated as 1/11th of the difference between the cost of the original purchase, and the sales price, not including stamp duty, agent's fees etc.

    Profile photo of bm17bm17
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    @bm17
    Join Date: 2010
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    This is a bit of a change of topic but I was also under the impression that GST is only payable if you have entered into the development with 'an aim to make a profit'?
    If you were able to show that your original purchase was not with the intent to develop (i.e. you lived in a dwelling for some time, then decided to sub-divide), would GST no longer be payable on the sale price of the new house or vacant land?
    Thanks

    Profile photo of Dan42Dan42
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    @dan42
    Join Date: 2008
    Post Count: 619

    That's right. GST registration is only required if you are running a business. Developing for profit would most likely be considered a business, but a once off development as per your example would most likely not be considered a business for GST purposes.

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