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FAQs – Building and construction14 February, 2017
Search for GST frequently asked questions relating to building and construction. Click on the question below to view answer.
A subdivider of residential land sells a number of lots to a builder who intends to construct houses on the lots and on sell to domestic consumers. Can the margin scheme be applied in these circumstances?
Yes. Where land is sold to a builder who intends to resell to private individuals for residential purposes, the builder will need to buy on the margin scheme if intending to sell on the margin scheme. The ultimate purchaser will then only pay GST on the excess of the total sale consideration over the cost of land to the builder.
A client wants to purchase a property which has an existing residence on it (now vacant). The property is zoned Residential. There is a town planning permit for 4 Units. The vendor is a company (not sure if registered or required to be registered for GST). The purchaser is a company (registered for GST). The Section 32 Statement says ‘exclusive of GST’. Is GST payable?
If the vendor is neither registered nor required to be registered for GST, the supply will not be taxable, and no GST will be payable. If the property consists of premises that:
- have been sold previously and have not been ‘substantially renovated’ since;
- possess the characteristics of a residence as discussed in draft ruling GSTR 2012/D1;
- are fit for human habitation; and
- may lawfully be used for residential purposes,
the supply will be input taxed (that is, no GST is payable) even if the vendor was registered or required to register.
The decided cases support the view of the ATO that the question of whether premises are “residential premises to be used predominantly for residential accommodation” is determined objectively by reference to the physical characteristics of the building and not by reference to the subjective intentions of the parties.
The client is an owner builder who completed his house in 2008 and is now selling. At the time of building the house he was working as a builder for a company, now he runs his own building company. The client claims that he had no intention of selling so quickly but things have changed. Will his intentions at the time of finishing the house or during the building of the house have any bearing on whether GST is payable or not? Or is it plainly that GST is payable?
The answer is predicated on the assumption that the house is in the name of the client as an individual and not the client’s building company.
Certainly the supply of new residential premises attracts GST, but only where the supplier is registered or required to register for GST and the supply is in the course or furtherance of an enterprise.
The question of the application of GST in this case will be determined by the intention of the client at the time of construction, including the preparatory/planning phase, as well as the actual construction phase: if, at those times, the client intended the residence to serve as his/her own residence, then the supply will not be in the course or furtherance of an enterprise and will not attract GST.
That said, however, the client will have to be prepared to satisfy the ATO that his intention was that the residence would be a private or domestic asset, and anything in the circumstances surrounding the construction giving a contrary impression (such as the claiming of input tax credits in relation to building costs) would present a problem for the client.
If the property was in the name of a company, there would be an inference that the company was engaged in something with a business flavour as the residence would be constructed for the occupation of a third party – after all, a company cannot have a personal residence or private or domestic assets.
Section 195-1 provides that substantial renovations are renovations in which all, or substantially all, of a building is removed or replaced but that the renovations need not involve removal or replacement of foundations, external walls, interior supporting walls, floors, roof or staircases. This means it is possible to have ‘substantial renovations’ without doing any structural works.
A final ruling GSTR 2003/3 has been released on this topic. Some important points to note are:
- The renovations need to affect the building as a whole and must result in the removal or replacement of all or substantially all of the building.
- Whether the substantial renovations have occurred is based on the building in its entirety. Major renovations to the kitchen and bathroom where only minor work is done to the rest of the building will generally not constitute substantial renovations.
- Cosmetic work by itself (e.g. painting, sanding of floors, replacement of floor coverings) does not amount to substantial renovations.
- Only renovations by the current owner are relevant.
- Works not attributable to the building itself are disregarded (eg landscaping).
Owners have substantially renovated their home and now wish to sell. Will the home be considered ‘new residential premises’ as a result of the substantial renovations and therefore be subject to GST?
If the renovations qualify as ‘substantial renovations’ the premises would be ‘new residential premises’ since this would be the first sale after completion of the renovations. However, unless the clients are:
- registered or required to be registered for GST;
- the sale is in the course or furtherance of an enterprise; and
- the supply will not be taxable as the sale is of one’s own home, these criteria will not be met. If any doubt exists as to the application of the criteria, a margin scheme clause should be included in the contract.