Do you pay GST on the sale of a IP?

[wriggles]

Hey there!

Im selling an IP for the first time and just wanted to know what you have to pay in regards to GST and capital gains tax.

Say i sold the property for 260k.
Is it:
260k - 10%Gst (26k) = 234k
234k - 6.5k (2.5% agents fees on total sell price) = 227.5k
227.5k - 190k (loan) = 37.5k
37.5k - 25% CGT = 28k left in profit?

Just curious if this is correct?

Thanks

Jason

 

[Ausprop]

did you build this house?

 

[wriggles]

no it was an existing 25-30yr old house.

 

[WinstonWolfe]

Try this:

Workings for Capital Gains

Capital Gains =

(Sale Price - Legals - REA Comm - Capital Expenditure)

less

(Purchase Price + Legals + Stamp Duty + Inspections - Depreciation Claims for existing building and new capital works)

If owned for >12 mths, divide capital gain by 2 and this is the amount added to your taxable income for tax calc purposes.


Considerations for GST


New homes built as IPs must be rented more or less continuously for 5 years before they can be sold exempt of GST.

If the house was not new when you bought it, then there's no GST involved. I think the wording goes something like GST only applies to the first sale.



If you search Julia Hartman's posts or website BANTACS or posts by Mry, they are two of the clearest accountants that have posted on the topic here in the past.

 

[NedKelly]

New homes built as IPs must be rented more or less continuously for 5 years before they can be sold exempt of GST.
.

I never know that, can you have to apply the margin scheme? What if you are not GST registered?

 

[Ausprop]

I never know that, can you have to apply the margin scheme? What if you are not GST registered?

can of worms... if your business is renting not developing, then it can be less than 5 years, but if you are a builder, REA etc then you will probably be captured (from my understanding anyway)

you don't apply to use the margin scheme but you have to declare it in the contract of sale, otherwise kiss it goodbye and get your cheque book out for the full 10% of sale price. if you are not registered and you should be, then you have broken the law and need to rectify the situation, if you arent registered and dont need to be, then no prob

 

[eKwatee]

I think you only have to pay GST on the sale if you have to be registered or are registered for GST and you bought the property before 1 July 2000 and have or will use the margin scheme to calculate the GST.

I would visit a good accountant before signing a contract because both parties need to agree on the signing of the contract if the margin scheme is to be applied, it used to be at the absolute discretion of the vendor but now both vendor and purchaser need to agree.

 

[WinstonWolfe]

Even good accountants are terrible with this stuff..
Get one that has an interest in investment property.
I went through three before I found one who knew about the 5 year holding rule.

 

[poperr]

Talking about GST, I am trying to find out info about GST and NZ. A sellling agent told me the following for the sale of my apartment in NZ....

"So we are marketing as inclusive of GST but this will have to be paid by you from the proceeds of the sale.GST is 17.5%"

Is that true? That means if I sell for the valued price of 280k, I will have to pay 49k in GST from the sale...

 

[Pushka]

Since when does a person have to pay GST when purchasing property, other than on the Agent's commission? And if it isnt collected, then why would you have to pay it? If you are not registered for GST, then any sale must be free of GST because you are not registered to collect it. Surely?

 

[willfong]

I did a bit of research on the net and talked to my lawyer about this recently, as my bank solicitor insisted on adding GST in the stamp duty calculation. From what I understand, sale of established residential property is exempt of GST. By "established" it means the property has been sold before (ie you are not the developer) or it has been rented out for at least 5 years. In any cases where the seller of a good is not registered for GST there shouldn't be any GST added on anyway. In my case, in the end I obviously didn't have to pay GST on the purchase so stamp duty was calculated on the original price.

You better talk to your solicitor or property accountant if you are still unsure (this is not a legal advise nor am I qualified to give one).

 

[eKwatee]

I think there is a lot of investors who probably should be registered for G.S.T and don't even know it. My believe is if they turnover(gross business income) more than $75,000 p.a. and run an enterprise that continues they should be registered for G.S.T.

Only my interpretation of G.S.T. law.

 

[wriggles]

Thanks heaps for your input.

 

[Mry]

I made a tree diagram so that people can work out their tax situation on selling a house.

Its here.

Sorry its not too clear. My artwork department is basically....me.

The article it relates to is here.

 

[Pushka]

Thanks for that Mry, very well done, as usual!

I tried to give you kudos, but it says I must spread it around before giving it to you again!

 

[Mry]

Thanks Pushka.

The diagram does deal in generalities so do seek advice when you are selling. It really is a complicated area.

 

[WinstonWolfe]

Excellent teaching aid Mry. Thanks indeed.

I always wonder why the ATO cannot generate more flow charts like this that put tax payers into a smaller ballpark.

It'd save them millions in phone call centre manhours.


I presume
MR = mere realizaton
PMV = profit making venture

 

[eKwatee]

Mry
With the boom in the market where any successful buyer who purchased a block of land or even a good guess on a spec home and the amount of small time and one off developers undertaking developments not actually having a clue about G.S.T. law, even what intention they had to sell or rent etc., and their accountants not being familiar with taxing property developement and property investment, many of these people should be hoping they dont get audited. I discuss such mentioned issues with many buyers and many sellers and they just dont have a clue. Would you believe many agents in this state down even know how to structure contracts for selling development or investment properties especially the agents selling property pre G.S.T.