Real Estate Sales & GST
New laws come into effect from the 1st of July, 2018*
Will this apply to you?
You need to find out if your sale of real estate sale will trigger a liability to pay Goods and Services Tax (GST).
A seller (vendor), of a typical residential real estate, is highly unlikely that you that you will have to pay GST on your sale.
However, you are ultimately responsible for determining your tax position, and so it is important to do some homework on the GST and how it may affect your property sale.
The general rule or principle The general rule or principle re GST, is that it is a tax on supply. The person who is making the “taxable supply” (vendor), is the person who has to pay the GST.
The purchaser, however, pays the GST when the seller’s contract with the purchaser requires the purchaser to pay, or to reimburse the seller, for the GST the seller is required to pay. Overall most people are familiar with prices advertised as $+GST.
Thus, although it is the seller who must pay the GST to the Australian Tax Office, GST is ultimately paid by the consumer.
The difficulty with GST is in determining whether or not it is payable by the seller, so that the seller knows when to require the purchaser to add it to the cost of what is being purchased.
GST in real estate sales – New not Old No GST – Second hand Residential Real Estate
*NOT* payable on the sale and purchase of “residential premises”, unless the property being sold is ‘new’ property.
Second-hand - Residential real estate (E.g House, Flat or apartment lived in) will rarely incur GST. Therefore most ordinary sales of residential real estate no GST. The purchaser cannot be made liable to pay an amount for GST in this instance.
Exempt - It doesn’t matter if the property is owner occupied or an investment property, so long as it is residential property and it is not new.
(VERY IMPORTANT: Selling vacant land - Assume that GST will be payable unless your tax accountant instructs you otherwise. Vacant land is not ‘residential premises’.
Confused? It is often difficult to determine whether a property is ‘residential premises’ for the purpose of GST. Speak to your financial adviser & or Accountant.
Our sources of reference:
- Vendor guide on GST treatment of residential premises
- Property – GST and Property – Residential Premises
- Meaning of “residential premises” for GST purposes – New GST ruling released
NOTE – Selling property owned by a company, or held by a trust, then it is even more essential you obtain advice from your accountant & or financial adviser.