The option fee

Q: My client, who runs a childcare business as a sole trader and is registered for GST, bought land to build an investment property. Can she claim GST on the building costs? What happens if she decides to sell the property once it's built?

A: Since the investment property isn't linked to the childcare business, it's considered a separate venture. If the property will be rented out, which counts as a business activity, the question is whether the building costs can be claimed for GST.

To claim GST on the building costs, the building must be acquired for a GST-eligible purpose. This means if the client gets the building as part of her business activities, she can claim GST. But if the building is for making supplies that are exempt from GST, like renting out residential premises (like a house), then she can't claim GST on the building costs.

If she sells the building, whether GST applies depends on what kind of building it is. If it's commercial, then GST applies when she sells it. If it's residential and sold as "new residential premises," GST applies too. However, if she holds onto the building for at least five years before selling it, it's not considered "new residential premises," and GST doesn't apply when she sells it. In any case, if the building is sold as a commercial building or "new residential premises," she can claim GST on the building costs.

If you have any questions, feel free to contact Tax Ideas Accountants & Advisers at+61 2 83181545. You can also book an appointment through our live calendar.