Can you Claim GST back when building an IP

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From: DaveJ _


Hello All,

I have a GST question that I would like to get clarified.

A ‘friend’ of mine has been told by their accountant (actually two different ones) that they can claim back the GST expenses as a result of building their investment property if they do not live in it for 12months. The details are:

• Person A Will pay for the entire property (and have it in their name)
• Person B (married to person A) is a registered builder and will build the house. (minus some sub-contracting for certain parts of the construction)
• The House will be used from the beginning as an investment property
• The house is in QLD (if that makes a difference)

I am assuming the ‘builder’ will be charged GST on the building materials and I think this is the GST they want to claim back?


It sounds very dodgy so I put it to the forum. Also if it is allowed/not allowed I would greatly appreciate a reference to support my argument.


Thanks in advance for any replies. (any accountants willing to comment)

DaveJ
 
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Reply: 1
From: Dale Gatherum-Goss


Hi Dave

>I have a GST question that I
>would like to get clarified.
>
>A ‘friend’ of mine has been
>told by their accountant
>(actually two different ones)
>that they can claim back the
>GST expenses as a result of
>building their investment
>property if they do not live
>in it for 12months. The
>details are:


I think your friend has had some advice that is not quite correct. If a builder incurs GST on their costs in a project, then that GST is refunded by the ATO in the BAS.

However, if the building is sold within 5 years, the builder would have to charge GST on the sale and pay that amount to the tax office.

Moreover, if the house is converted to an IP before sale (anywhere in that first 5 years), then the builder will have to lodge an amended BAS to pay back the GST that was claimed.


>• Person A Will pay for the
>entire property (and have it
>in their name)


Do I understand that this person is the investor?


>• Person B (married to person
>A) is a registered builder and
>will build the house. (minus
>some sub-contracting for
>certain parts of the
>construction)


As the builder, person B is building on behalf of person A and so will be deemed to have sold the property including GST to person A.


>• The House will be used from
>the beginning as an investment
>property


Person A will take possession of a property that includes GST in the contract price. Person A cannot claim back the GST because the intention is to use that property for non GST purposes.


>• The house is in QLD (if that
>makes a difference)
>

NO.


>I am assuming the ‘builder’
>will be charged GST on the
>building materials and I think
>this is the GST they want to
>claim back?


Yes, this is right. There is also GST on the sub-contract labour and many other costs involved as well.


>It sounds very dodgy so I put
>it to the forum. Also if it
>is allowed/not allowed I would
>greatly appreciate a reference
>to support my argument.
>


Does this help? I hope so.


>Thanks in advance for any
>replies. (any accountants
>willing to comment)
>
>DaveJ


Cheers

Dale
 
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