This will come as a surprise to many property investors who have built new premises (or heavily renovated a property) on land that they own.
While there is no deemed GST on the sale of second-hand residential property, the sale price of a new or heavily renovated residential property is taken to include GST. e.g.: If you sell your new premises and land for $770,000, you could lose $70,000 in GST.
The GST payable could be less that the normal 10% if certain criteria are met. Talk to us, we can help you with the calculation.
What’s more, the ATO is changing the way they collect the GST. From 1 July 2018, buyers who purchase new residential premises, or potential residential land, need to withhold an amount from the purchase price and pay it directly to the ATO on or before settlement. In the past, the GST had to be remitted to the ATO when the seller lodged their next Business Activity Statement.
There are transitional rules that apply to some existing contracts.
If you sell new residential premises or potential residential land, you need to let the buyer know if the buyer needs to withhold an amount at Settlement. You can include this information in the sale contract or in a separate document. Normally your lawyer or conveyancer will handle the documentation.
If the buyer needs to withhold an amount, the seller must also include the details listed below:
The seller’s name and Australian Business Number,
The amount the buyer needs to withhold and pay to the ATO,
When the buyer needs to make the payment,
If the purchase includes a non-cash payment (such as land swaps), the GST-inclusive market value of that part of the payment, and
Other information as stated in the regulations.
Sellers don’t need to tell the buyer if they are selling:
Second hand residential land,
Commercial residential premises,
Potential residential land where the buyer is a GST – registered business purchasing the property for a creditable purpose.
Once the buyer has paid the GST to the ATO, the ATO we will make a credit available to the seller in a “GST property credit account” and send the seller an email to confirm this. They’ll apply this credit against their activity statement account once the seller lodges their BAS. There are no changes to the GST rate or the way the seller lodges their BAS.