When a company sells residential property in Australia, Goods and Services Tax (GST) often plays a significant role. Whether GST applies depends on several factors, such as the type of property being sold and the company’s activities.
For example, the sale of new residential premises typically attracts GST, whereas existing residential premises are generally input-taxed, meaning GST does not apply.
Today, let’s have an in-depth look at GST obligations when a company sells residential property. This guide will cover the situations where GST applies, the benefits and conditions of the GST margin scheme, the types of properties affected, and the GST withholding regime.
Understanding these aspects ensures compliance and helps avoid costly mistakes in property transactions.
Does GST Apply When a Company Sells Residential Property?
GST often applies to the sale of residential property, but the circumstances can vary depending on the type of property and the company’s activities.
Key Factors That Determine GST Applicability
Type of Property Sold
- New Residential Premises: GST generally applies to the sale of new residential premises. These include properties that have not been sold as residential accommodation before or have been substantially renovated.
- Existing Residential Premises: The sale of established homes is usually input-taxed, meaning GST does not apply.
- Company’s Role: If the company operates as part of a property development business, GST is likely to apply to its sales.
- GST Registration: A company must be registered for GST if its turnover exceeds $75,000 annually. If registered, GST obligations automatically apply to eligible transactions.
Exemptions
There are limited situations where residential property sales by a company are GST-free, such as certain sales to charitable institutions or when sold as part of a going concern.
Also Read: What is GST on Property Sale in Australia?
What Is the GST Margin Scheme, and Can Companies Use It?
The GST margin scheme can reduce the amount of GST payable on the sale of residential property. It is designed to make GST more affordable for certain transactions but must be applied correctly to avoid compliance issues.
How the GST Margin Scheme Works
Instead of calculating GST based on the full sale price of the property, GST is applied to the “margin.” The margin is the difference between the sale price and either:
- The original purchase price of the land; or
- The property’s value as determined at a specified time, such as at 1 July 2000 (the introduction of GST).
Eligibility for Companies
Companies can use the GST margin scheme if:
- The property being sold qualifies for the scheme (e.g., new residential premises or subdivisions of vacant land).
- The scheme is agreed upon in writing with the buyer.
- The company has proper documentation showing eligibility.
The scheme is not available for all transactions, such as those involving property purchased under a standard taxable sale. Consulting an experienced conveyancer or tax expert can clarify eligibility.
Benefits of the Margin Scheme
Lower GST Payable: This can lead to significant cost savings for developers and buyers.
Improved Affordability: It makes properties more accessible, especially for first-time buyers and smaller investors.
Also Read: Selling Commercial Property Not Registered for GST
Are All Types of Residential Properties Sold by Companies GST-Free?
Understanding whether GST applies to residential property sales often depends on the property type. Let’s break this down further:
New Residential Premises
GST generally applies when a company sells new residential premises. A property is considered “new” if:
- It has not been previously sold as residential accommodation.
- It has undergone substantial renovations.
- It was constructed on vacant land as part of a development project.
Existing Residential Premises
Sales of established homes or existing residential premises are usually input-taxed. This means:
- No GST is charged to the buyer.
- The seller cannot claim GST credits for expenses related to the property.
Vacant Land
Vacant land sold by a company may attract GST, depending on its use and the company’s GST registration status. Land intended for residential purposes often has GST implications, especially if it forms part of a subdivision project.
GST-Free Transactions
While rare, certain transactions may be GST-free, such as:
- Sales to charities under specific conditions.
- Property sold as part of a going concern where the business continues to operate seamlessly.
How Does GST Withholding Work for Companies Selling Residential Property?
In Australia, buyers of certain residential properties are required to withhold a portion of the sale price and remit it directly to the Australian Taxation Office (ATO). This is known as the GST withholding regime, introduced to ensure proper compliance with GST obligations.
Buyer’s Responsibilities
When buying a residential property from a company, the buyer must:
- Determine if GST withholding applies.
- Withhold the required amount from the purchase price.
- Lodge and pay the withheld amount to the ATO on or before settlement.
Seller’s Responsibilities
The company selling the property must:
- Provide the buyer with written notice about their withholding obligations.
- Clearly indicate whether the sale is subject to GST withholding and the exact amount to be withheld.
Key Points About GST Withholding
Applicable Transactions: The regime primarily applies to sales of new residential premises or potential residential land (e.g., vacant land subdivisions).
Amount to Withhold: This is typically 7% of the contract price but may vary in certain cases.
ATO Notifications: Both buyers and sellers must notify the ATO about the transaction to ensure compliance.
Benefits of the GST Withholding Regime
This system protects revenue for the ATO and reduces the risk of GST non-compliance by ensuring funds are collected at the point of sale.
Need Assistance on GST and Property Sales by Companies?
Understanding GST on the sale of residential property by a company can be complex, with rules varying based on property type and transaction details. Companies must ensure compliance with GST obligations to avoid penalties and delays, while buyers need to be informed about their withholding duties.
If you need assistance with GST on residential property sales or any other conveyancing matters, CJC Law is here to help. Our expert conveyancers provide personalised advice tailored to your unique needs, ensuring smooth and compliant transactions. Contact CJC Law today to schedule a consultation, and let us simplify the process for you.
