It’s easy to become confused about GST and how it applies to residential property developments.
Below, I’m discussing small scale developments, rather than larger scale. This means one, two, three units, or similar.
A change of intention means change of responsibility
Although the same principles apply, the intentions change more regularly with smaller developments.
When your intention for these new properties changes so does your responsibility for GST.
Some people aren’t always aware of this, and they are shocked when they realise that the GST they claimed needs to now be paid back to the ATO, or they have to pay more GST to the ATO than what they originally realised.
Sometimes this scenario can result in your property sales making a loss, in which case you may have been better off renting the property out for a few years.
A typical scenario
You’ve got a block of land which you’re going to build three units on and then sell them.
That’s great. You know that GST is going to apply. So, that’s not an issue.
However, when you go to put them on the market, you find that the market has dropped and you’re not going to get your money back.
So, you decide to rent them out for a little while.
At that moment when your intention changes, your entitlement to have claimed all the GST on the build changes too. You’re no longer entitled to it.
So, it involves some quite complex calculations where we have to adjust the GST and pay back some of what you’ve claimed to the ATO. Now,
If the opposite occurred and you were building with the intention of renting. Then, instead, you decide to sell, you would now be able to claim the GST on the build that you hadn’t been able to claim previously.
The first step…?
Property tax law, and in particular, GST on residential property developments, is complex.
It’s vital that you keep a record of your original intentions and also when they do change.
You’ll also find that speaking to your tax accountant will be very valuable for assisting you to make the best decisions that enable the best tax outcomes.