Forums / Getting Technical / Legal & Accounting / GST and residential development

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  • Profile photo of BrettBrett
    Participant
    @jimchap131
    Join Date: 2013
    Post Count: 22

    Hi all – hoping I could get some general advice

    I’m going to an auction for a house in Wollongong. It has a 22m frontage with a house positioned to one side of the block (taking up roughly half the width)

    My intention is to build another dwelling within the side setback, torrens title and then sell each dwelling.

    My interpretation of the GST rules is that I will only be liable to pay GST on the sale of the new dwelling. I don’t pay it on the existing dwelling because it is not a new residential premises.

    Is this interpretation correct?

    Profile photo of HouseofwealthHouseofwealth
    Participant
    @houseofwealth
    Join Date: 2018
    Post Count: 7

    Re GST you will pay on purchase it will depend on the situation of the current owner.

    If its held as trading stock by the current owner it may be subject to GST. If its a residential block that they have held for 10 years and merely has a house they lived in or rented for those years and they never had an intention to do anything more then they probably wont be subject to GST so you wont pay GST on the purchase.

    When you sell you will be liable for GST.

    Re the block with the land and existing house i believe it will also be subject to GST.

    MT 2006/1 states

    270. In isolated transactions, where land is sold that was purchased with the intention of resale at a profit (which would be ordinary income) the Commissioner considers these activities to be an enterprise. This would be so whether the land was sold as it was when it was purchased or whether it was subdivided before sale. An enterprise would be carried on in this situation because the activities are business activities or activities in the conduct of a profit making undertaking or scheme and therefore an adventure or concern in the nature of trade.

    Do some tax planning re using the margin scheme on sale so you have an idea of your projected profits from the outset.

    • This reply was modified 1 year, 10 months ago by Profile photo of Houseofwealth Houseofwealth.
    • This reply was modified 1 year, 10 months ago by Profile photo of Houseofwealth Houseofwealth.

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    Profile photo of BrettBrett
    Participant
    @jimchap131
    Join Date: 2013
    Post Count: 22

    Could you give me a very broad and basic run down of the margin scheme? Can you sell a property under the margin scheme if you’ve bought a piece of land off a long term home owner and GST wasn’t required to be included in the sale?

    Profile photo of HouseofwealthHouseofwealth
    Participant
    @houseofwealth
    Join Date: 2018
    Post Count: 7

    Generally you could use the margin scheme in such a situation.

    When you sell the purchaser and you must agree in writing to use the margin scheme.

    Basically GST is calculated as 1/11th of the margin. That is difference between sales price and purchase price. Better than 1/11th of the sale price.

    You may also be eligible to claim input tax credits during the development so that will assist with cashflow planning.

    Houseofwealth | HOUSE OF WEALTH
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    Profile photo of HouseofwealthHouseofwealth
    Participant
    @houseofwealth
    Join Date: 2018
    Post Count: 7

    You should also consider which entity should acquire the property for tax planning purposes. A lawyer can advise whether the and/or nominee clause will work to prevent double stamp duty.

    Either way the entity would need to be setup prior to entering into contracts.

    You need a good lawyer in the state your in to advise on that.

    Houseofwealth | HOUSE OF WEALTH
    http://www.houseofwealth.com.au
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    MELBOURNE PROPERTY ACCOUNTANTS

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