Ideas Tax Knowledge Blog

Topics on CGT and GST for property buyers (20)

Written by Ideas Group | Mar 19, 2021 4:39:58 AM

If Derek built the house in October 2019 with the intention of selling it for profit, there are some important considerations to keep in mind:

  1. Taxable Supply: The sale of the house is likely to be seen as a taxable transaction. The Australian Taxation Office (ATO) generally considers building a house for sale as a profit-making venture. This means Derek would need to register for Goods and Services Tax (GST) because he meets the turnover threshold of $75,000.

  2. Type of Property: The house Derek constructed in October 2019 is considered "new residential premises." This is true regardless of whether it was built on vacant land or to replace demolished premises on the same land.

As part of the transaction, GST withholding applies. Here are the details that need to be included in the supplier notification:

  • Derek’s full name and Australian Business Number (ABN).
  • The total contract price including GST, which is $1.1 million.
  • The amount that Clarence, the buyer, must withhold. This could be $77,000 if the margin scheme applies (that's 7% of $1.1 million) or $100,000 if the margin scheme does not apply (which is 1/11 of $1.1 million).
  • The due date for Clarence to pay the GST withholding amount to the ATO, which is the settlement date.

Once the GST withholding amount is paid, Derek receives a credit to his GST property credit account. This credit is automatically applied by the ATO against his net Business Activity Statement (BAS) liability. Any surplus credits are then refunded to Derek, subject to the ATO’s normal GST refund processes.

 

Got questions? Reach out to Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment on our live calendar.

 
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