GST FAQs – New Residential Property

Search for GST frequently asked questions relating to new residential property. Click on the question below to view answer.

The ATO takes the view that if a residence is included in the supply of a going concern, Division 135 will operate to provide an increasing adjustment in relation to the proportion of ‘non creditable’ use (ie, the proportion applicable to the residence).

The way to avoid this anomalous outcome is to treat the supply as a mixed supply in the first place, allocating a bona fide value to the residence and excluding it from the supply of the going concern.

According to the ATO view, as expressed in ruling GSTR 2000/20 , it is the nature of the premises rather than any subjective intention of the purchaser that determines whether or not the supply of existing residential premises will be input taxed. The attitude of the ATO appears to be that where premises possess the physical characteristics of residential premises, the intention of the purchaser will not change the GST status of the supply. This position appears to be supported by the balance of authorities on the point.

No, the sale of residential real estate (unless new residential premises or commercial residential premises) will not attract GST despite the fact that it generates business income for the owner. The position would be the same even if the vendor’s sole source of income was rent from tenanted houses.

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).

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.

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Key contact:   Heather Hibberd
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