Do I pay GST??

Hi All

Have had conflicting information and need some advice as I am confused.

I purchased a house 6 months ago, will be demolishing the house, splitting the block in 2 lots, would I pay GST on selling the 2 blocks??

If I decided on another option where I only sold 1 block and built on the other, what then?? GST on the build but what about the block/land I sell??

Also, as I have a number of projects on the go I would fall under the category of developer.

Thanks
MTR:)
 
Not sure what happens if you're demolishing but I asked my accountant about a situation as per your second scenario just the other day. He said no GST because I would be approaching the project as an investment and not a business venture. In your case I take it that would mean GST would apply. Probably best if someone in the field posts a response though.
 
Your strategy appears an enterprise. Your intend to make money from the venture of subdivision of land. Its highly probable that is a enterprise that falls within the ambit of GST.

Many developers have intent to sell after building and this certainly falls in the area of "new residential land which is specifically subject to GST. The issues with vacant land need to look at intent a bit further

eg : A young couple buy land intending the build a future home. They break up and the land is sold. This is a mere realisation and the intent wasn't to make profit at the time of acquisition. It was to build a home. No GST and CGT rules would apply to land.

However a developer who does as you propose is likely to meet the tests for conducting an enterprise (See MT 2006/1 as Mike says to see what ATO views are relating to an ABN). The land would be trading stock and all profits taxed as ordinary income. Turnover thresholds are likely to impose GST. Your acquisition will be GST Free. Can you use the margin scheme to reduce the tax cost ?? Read more here https://www.ato.gov.au/General/Property/Vacant-land/

Personal tax advice is needed.
 
Thanks for the help, that clears things a little, it also screws my profits:eek:

Am I correct in stating that I would pay around
$26,600 GST
Can I use margin scheme???


Here are my figures
Seems ATO is my partner in crime, have not even taken out CGT, they do no work and they get bite at each end, another rant from me:rolleyes:


I purchased the land/house for -
$550,000, stamp duty - $572,000
sub division costs - $50,000 (including demolishing/headworks etc)
Selling costs - $12,000

Sell lot 1 - $450,000
Sell lot 2 - $450,000


If I end up having to pay too much tax I think I will just build on 1 parcel of land and rent it out as it will be cash flow positive, sell it after 5 years.

Cheers
MTR:)
 
Sorry MTR - Its more....

Normally GST would be 1/11th x $900K...$81,818

If you can elect to sell the properties and use the margin scheme your GST will be $31,818...That's 1/11th of the difference between the $550K cost and its sale price. You don't include duty etc in the calculation though.

You wont be the last person to question that merits of the silent partner who can take 1/11th of all you sell PLUS 30-40% of any profit you also make. You said "haven't taken out CGT"....CGT doesn't apply to your proposal. Its fully taxable as ordinary income.

Of course the GST savings increase profit so for each dollar of GST saved = even more in income tax.

The strategy of keeping one, renting it and selling after 5+ years is very common. You get to bank the GST. Unfortunately you cant claim the GST on the build though. The increase in value in that time may be subject to CGT rules maybe ?
 
M,

I think you will be spending a lot of time with your accountant fine tuning this/your strategy.

Having the ATO as your JVP sucks but is a necessary evil.
 
Sorry MTR - Its more....

Normally GST would be 1/11th x $900K...$81,818

If you can elect to sell the properties and use the margin scheme your GST will be $31,818...That's 1/11th of the difference between the $550K cost and its sale price. You don't include duty etc in the calculation though.

You wont be the last person to question that merits of the silent partner who can take 1/11th of all you sell PLUS 30-40% of any profit you also make. You said "haven't taken out CGT"....CGT doesn't apply to your proposal. Its fully taxable as ordinary income.

Of course the GST savings increase profit so for each dollar of GST saved = even more in income tax.

The strategy of keeping one, renting it and selling after 5+ years is very common. You get to bank the GST. Unfortunately you cant claim the GST on the build though. The increase in value in that time may be subject to CGT rules maybe ?

Thanks Paul, its good to at least have an idea on what I expect to pay. Very much appreciate you taking the time with this. ATO not investor/developer friendly:(


WM
Yes, I think I will be spending more time with accountant just to work the numbers.

MTR:)
 
Back
Top