The Goods and Services Tax or GST as it is more commonly known may in some circumstances be levied on the sale and purchase of property. The rules that govern GST and in particular property are incredibly complex and have been the subject of numerous court rulings.
In the event that GST is payable, it is the obligation of the seller to pay that GST. However the seller, through the operation of the contract of sale can recover from the buyer any GST which the seller may be obligated to pay.
In order for a property transaction to attract the imposition of GST, there are four requirements that must first be fulfilled:
- There must be consideration such as payment for the property
- The transaction must occur in Australia
- The seller must be a registered entity; and
- The supply must be part of a business or enterprise, which is undertaken on a regular basis, with the aim of making a profit.
Requirement number 4 means that a private individual selling their family home will not be subject to the payment of any GST as they are not undertaking a business or enterprise on a regular basis and selling with the aim of making a profit.
However if you are buying a new or off the plan property from a developer, GST will be applicable. The GST Act defines new property as property that has never previously been sold as a residential property or property that has been created through substantial building or renovation works or has been built to replace a previously demolished premises.
From 1 July 2018, most purchasers are required to pay a withholding amount from the contract price at the date of settlement. This applies to:
- new residential premises
- land that could be used to build new residential property (‘potential residential land’).
This means that the GST is paid directly to the ATO rather than to the property supplier.
As always there are exceptions to every rule and a new property will not be considered new, if among other circumstances a tenant has resided in that property for a period of five years or more.
In these instances where GST is payable on the purchase of a new property, the developer through the Contract of Sale will recover from the buyer that amount of GST which is payable to the ATO in addition to the purchase price. In such circumstances it has become commonplace for the purchase price to be expressed in the contract of sale as GST inclusive.
In these instances, the ATO has also curiously determined that GST will be applied to rates and other similar adjustments.
There are certain classes of property transactions that by their very nature will not attract any GST. The most common GST exempt transactions, in addition to the sale of the family home will include the sale and purchase of a farm provided that the property was being used as a farm for a period of at least five years prior to the sale.
Additionally the sale and purchase of commercial property that is rented to a tenant will not attract any GST provided that the buyer and seller agree in writing, the seller supplied all that is required for the continued operation of the business and the seller carries on that business until such time as the property is settled.
As always this article contains general information only and should not be relied on for detailed advice related to your particular circumstances. Should you require such advice, please contact your lawyer.