GST applies to the sale of property if you are conducting an enterprise. Whilst the sale of "Residential Property" is exempt from GST if the property has previously been lived in, "New Residential Property" is subject to GST. If you build a house with the intention of selling on completion, you are considered to be "conducting an enterprise" for GST purposes and the sale is subject to GST.
A substantially renovated property may also be classed as "new residential property" and subject to GST on sale. Please check with our office if the transaction is for a property that is being used in a business but it is residential property that has been converted for that purpose. In this instance it is possible that GST may not apply even though it is a business asset that is being sold.
GST is normally 1/11th of the sale price when the property is sold. The GST to be remitted can, at times, be reduced if the Margin Scheme is applied. Under the Margin Scheme, the GST is calculated as 1/11th of your increase in value between the purchase and sale value. For example:
In this instance the vendor will remit $10,000 less in GST on the sale of the property if the Margin Scheme applies. To apply the Margin Scheme, both parties (buyer and seller) must agree in writing that the margin scheme will apply before the property settles, and it is best if this is done as part of the contract.
Instances where the Margin Scheme may be of benefit include:
- Property held prior to GST i.e. 1 July 2000
- Nil GST included in the purchase price
- Where the buyer cannot claim GST e.g. residential property
- Where the buyer will not use the property in a business e.g. as a hobby
If you have any queries on this topic please contact Peter Flemming at email@example.com or Malcolm Diefenbach at firstname.lastname@example.org