Thursday, 6 September 2012

Understand GST implications Sub Divisions of Land and sell them


Understand GST implications Sub Divisions of Land and sell them!!

Max Newnham from SMH

I am buying a block of Land and sub dividing it into 5 lots.
The property has to first see if it is possible to sub divide , by looking at minimum lots size then 
we look at the building ratio to land for each block. 
What will they be worth with a house on them. How much does it cost to Build a house.
The council I am working with says I can do like the 2 up the street which is 5 lots.
I know need to know if I sell them if GST is payable.
Article below helped.

Property investors urged to understand GST implications

Max Newnham from SMH

In most cases the only taxes property investors have to deal with are income tax and capital gains tax.  But there are some situations that require an understanding of the implications of the goods and services tax on property investments.
Q. What are the GST consequences of someone building a new residential property to sell? Would your answer vary if the property in question was a main residence rather than an investment? Would the subsequent sale of the new dwellings attract GST in that instance?
The costs associated with getting a property into a condition where it can be rented are not deductible but form part of the purchase cost of the property.
A. A person or entity must register for GST if they are carrying on an enterprise and the expected GST taxable turnover will exceed $75,000. Carrying on an enterprise applies when something is done for the purpose of making a profit. In the Australian Taxation Office ruling setting out what constitutes carrying on an enterprise the activity of sub-dividing land and building a unit to sell is classed as carrying on an enterprise.
As most properties would have a selling value of more than $75,000 the activity of subdividing a property, demolishing the existing residence, building two units with one to be sold and the other one to be lived in, would result in the carrying on of an enterprise. If on the other hand the existing home was not demolished and only one unit was built, which would become the owner’s home, this is not carrying on an enterprise.

When a person must register for GST all of the GST they pay related to the residence they will be selling can be claimed. The individual must also include GST in the selling price if it is sold within five years of it being completed. If the property is sold after five years GST is not included in the selling price.
Q. As an owner of a rental property do I need an ABN to be able to claim back the GST portion that has been paid on any on-going property expenses?
A. In most cases people who own rental properties do not need to have an ABN. To be able to claim GST paid on expenses a business must be registered for GST and be earning GST taxable or exempt income. Income received from domestic properties is classed as input taxed income. Under this GST category no GST is charged and no claim can be made for GST paid on expenses related to the earning of that income.
In your situation if you are renting commercial properties this would be classed as GST taxable income. If you earn more than $75,000 a year you would need to be registered for GST and include GST in the rent you charge. You could then claim GST you paid on the expenses relating to that property.
If you only own residential property there is no need to register for GST and there would be no point in registering. This is because residential rentals are classed as input taxed and you could not claim the GST paid on the rental expenses.
Q. Is stamp duty tax deductible?
A. Stamp duty paid on the purchase of a rental property is not tax deductible but it forms part of the purchase cost. When the property is sold the stamp duty paid reduces the amount of capital gains tax payable.
Q. For an investment property is the initial cleaning claimable as an expense and tax deductible?
A. The costs associated with getting a property into a condition where it can be rented are not deductible but form part of the purchase cost of the property.
Investment tax questions can be emailed to