GST on purchase of new townhouse

[serano]

Hi

I have had a search and read a few threads but cant find a specific answer here (partly due to GST and property being what they are).

Im currently looking at purchasing a townhouse, 1 of 3 that was built approx 3 years ago. Its currently tenanted, but has only been so for 8 months total.

The only clause relating to GST in the contract is:

(This contract does not deal with GST, and the parties should take professional advice before signing.)

But from what i have read, the house counts as a new build and hasnt been tenanted for 5 years which makes GST a factor?

Does this mean that after all offers are accepted, i could find myself with an unexpected GST charge popping up?

At what point is GST calculated and the actual cost communicated to both parties on a house purchase?

Is there anyway to get this info/amount from the REA prior to putting in an offer?

 

[Aaron_C]

If there is GST it should be included in the sale price rather than being added on top. You should make sure that your sale of land contract specifies this otherwise the vendor will try to make you pay the GST for them.

 

[serano]

Thanks Aaron, your a busy man posting here and on whirlpool!

So i need to add in a clause that states that the offer price is inclusive of GST in order to cover my backend.

This forum is invaluable. There are so many small traps for a first timer.

 

[Terry_w]

See a lawyer and get a clause inserted in the contract which says any price includes GST if it is applicable.

Normally it is the seller that pays GST unless there is agreement otherwise.

 

[Paul@PFI]

Australian Consumer law doesnt tolerate (misleading & deceptive) resi real estate prices to be offered or contracted as GST exclusive however there is potential for the vendor to argue the point if for example he suddenly realises he is up for GST. Consumer law requires all sales to consumers to be expressed on a GST inclusive basis if any. Thats why its illegal to advertise $100 + GST. No its $110 and its up to the buyer to ask for a tax invoice. However rather than getting into legal arguements if this arises Terry's suggestion is very normal and common even for a old house where there is really no likely GST to have a clause that explicitly deals with such a "error" if thats what they will rely on later.

Then there is the market selling price issue. If the property is worth $100K he cant add 10% and expect it to sell for $110K just cause he forgot about GST. This issue is more evident with used cars and comparing a sale by a private seller and a car yard. A car will cost $3k regardless of the GST position of the seller.

A clause like Terry suggests just draws a line and reminds the seller it really is all their problem so they cant seek to change the price. GST Law contains that protection that the person making a taxable supply must collect, report and remit. Its self assessment. If ATO review the issue after a further three years they will amend the sellers BAS and increase taxable supplies by say $110K and calculate 1/11th of the supply. Vendor owes ATO $10K. If he doesnt have it thats his issue not yours.

 

[perthguy]

The only clause relating to GST in the contract is:

(This contract does not deal with GST, and the parties should take professional advice before signing.)

Is this because GST is so complicated that it depends?

i.e. the margin scheme could be negotiated if both the buyer and seller are eligibe to use the margin scheme, the property is suitable to be used for the margin scheme and the seller and buyer both agree to use the margin scheme.

You might have to see a specialist tax accounant to find out:
a) if GST applies to the sale
b) if the margin scheme is available

if GST does apply then Terry's advice is correct "See a lawyer and get a clause inserted in the contract which says any price includes GST if it is applicable."

Either way, I don't see a way around this other than getting professional help.

 

[serano]

Is this because GST is so complicated that it depends?

Either way, I don't see a way around this other than getting professional help.

After speaking with my accountant, that is basically the case. The accountant agreed with Paul@PFI that the price is inherently inclusive of GST unless otherwise stated.

As a just in case measure I will be adding an "inclusive of GST" statement on my written offer and have a solicitor review the contract and add in any GST clauses required. The Offer is being made separately from the actual contract for sale here as there are a number of changes i would like made to the contract.

The property is in Tasmania and the contract provided is an older document.

The latest standard contract gives options for taxable supply or not then refers to the pasted clause below.

9 GST
9.4 If the GST Treatment in the Contract is "The sale is not a GST taxable supply" the parties agree one or more
of the following apply:
(a) the sale is not in the course or furtherance of an enterprise carried on by the Vendor;
(b) the Vendor is neither registered, nor required to be registered, for GST; or
(c) the sale is an input taxed supply of residential premises to be used predominantly for residential
accommodation, and not new residential premises.
9.5 If the GST Treatment in the Contract is "The sale is not a GST taxable supply":
(a) the Vendor cannot recover from the Purchaser any GST payable on supplies under this Contract; and
(b) the Vendor makes no warranty that the Purchaser will receive any GST Tax Credits on supplies
under this Contract.
9.3 A word defined in A New Tax System (Goods and Services Tax) Act 1999 (Cth) has that meaning when
used about GST in this Contract.
9.4 Any GST conditions remain binding after completion.

 

[Paul@PFI]

The buyer has no need to review, check or even consider the sellers GST position in any contract. eg : taxable supply, registration , margin scheme, new or old construction etc.

However a prudent buyer should always ensure any contract has a clause which ends any claim for GST or any other adjustment later. I'm also a fan of inserting a special clause which doesnt allow a vendor to pass on land tax other than delayed settlement of course. If they pay land tax thats their problem. Too often a vendor will adjust pro-rata when land tax is assessed on onwership "at" a point in time. I say 'other than delayed settlement' as their legal adviser will want protection so if a settlement is meant for mid December and is delayed to January they can pass on that tax.

 

[Terry_w]

Yes any price you pay is usually inclusive of GST and you should not normally worry about whether the price includes or GST or not - you are just interested in the end price.

But with property there are often special conditions inserted by the vendor which make the buyer liable. My old boss had to sue a solicitor who did the conveyancing for an off the plan purchase. There was a clause that made the purchaser liable for any GST and the solicitor thought this being residential property there would be no GST - or maybe they didn't even read it. Anyway, it was a $1.5mil purchase of a brand new residential property and the GST was more than $100k.

 

[salt]

Yes any price you pay is usually inclusive of GST and you should not normally worry about whether the price includes or GST or not - you are just interested in the end price.

But with property there are often special conditions inserted by the vendor which make the buyer liable. My old boss had to sue a solicitor who did the conveyancing for an off the plan purchase. There was a clause that made the purchaser liable for any GST and the solicitor thought this being residential property there would be no GST - or maybe they didn't even read it. Anyway, it was a $1.5mil purchase of a brand new residential property and the GST was more than $100k.

Today our conveyancer read over our contract that had a clause mentioning GST to be liable by the purchaser. The property is an old run down 60's house that is be sold off by the bank after the vendor fell behind in payments. Our conveyancer contacted the vendors solicitor and after the conversation told us that there's pretty much zero chance of us having to pay any GST on this property. Yet the clause couldn't be removed as the bank wouldn't sign otherwise. On her assurance we signed... if we are liable for the GST we wont have the money on hand to cover it.
If we are liable, when would we have to pay it? On settlement? A later date? Can it be paid off?

 

[Terry_w]

Today our conveyancer read over our contract that had a clause mentioning GST to be liable by the purchaser. The property is an old run down 60's house that is be sold off by the bank after the vendor fell behind in payments. Our conveyancer contacted the vendors solicitor and after the conversation told us that there's pretty much zero chance of us having to pay any GST on this property. Yet the clause couldn't be removed as the bank wouldn't sign otherwise. On her assurance we signed... if we are liable for the GST we wont have the money on hand to cover it.
If we are liable, when would we have to pay it? On settlement? A later date? Can it be paid off?

Make sure you get this in writing from your conveyancer. Depending on the wording the vendor may be liable to the ATO and you liable to the vendor. It may take a while for this to come out in the wash, but be careful.

 

[Aaron_C]

Why would GST be charged on an old residential property?

 

[Terry_w]

Why would GST be charged on an old residential property?

Probably wouldn't be, but there could be chances - substantially renovated for example.

 

[salt]

Make sure you get this in writing from your conveyancer. Depending on the wording the vendor may be liable to the ATO and you liable to the vendor. It may take a while for this to come out in the wash, but be careful.

I doubt our conveyancer would put it in writing now. Especially as we have signed the contract on her advice already.

The property is in dire need of a renovation. It's only just livable in it's current condition... I guess we should be right.. hopefully

 

[Paul@PFI]

There is a good example - "Barely livable"....It may not actually be residential premises. Uninhabitable resi property may be taxable (GST). A recent case concerned its self on appeal with an occupation certificate. So lets say thats the case the seller may have a GST liability of 1/11th the sale price. Not the buyer. Clauses inserted to protect the seller from the own mistake may be ineffective anyway. But a sensible buyer should ensure that its clear the seller cant pass the cost on.

GST is a messy beast. Nobody wants to pay it on a sale that is determined by market prices since it erodes profit dollar by dollar. (ie two properties side by side one is new the other old and fully renovated may both be worthsame $$$. One loses value if its new since GST goes straight to Hockeys coffers).
GST is also a financing nightmare for some parties since banks dont lend that 9.09% of the acquisition. Also contracts tend to include clauses that protect in the event of review.... So default clauses that seek to recover GST are common. But sometimes they can also fail. A recent case failed as it suggested the price contracted could be increased. Court found for the buyer that a price was agreed and it isnt contingent on the seller getting their tax position wrong.

Just had a client who sold a commercial prop. The buyer gave him a seperate settlement cheque for GST payable to tax office !! They banked it to ATO. However he could claim some input tax credits. So account was overpaid and a refund due. Now ATO are doing a full review to explain the refund. All because the buyer wanted to be sure the GST was actually paid to ATO. I dont understand that logic - Its the sellers problem . Why would a buyer care how it was paid ? Its not their job to do vendors banking! ATO dont have a charge over the property that was sold (unless its a sham)