GST on your own home !? :-S

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From: GoMichael !


While chatting with my accountant today (as you do) he mentioned a quirk of the GST legislation to do with subdividing your own home and land.

Say you’ve lived in your home for 10 or 20 years and decide you don’t want that extra land on the side any more. So you subdivide and sell off the land. There’s no GST payable on the land sale, but the following two points now arise:

1. You are now the “developer” of a subdivision (your original large block of land).
2. Your house is now on a new title. So…it’s a NEW HOUSE!

The GST implication of 1 + 2 is that if you now sell the home you’ve lived in for decades, you’re a developer selling a new house – so you must collect and remit GST on the sale.

This is a consequence of how the legislation has been worded. I doubt that the ATO is going to be chasing after people who innocently find themselves in this situation as it surely isn’t the intent of the law. Unless of course they’re in the process of reaming out someone they’ve caught for evasion elsewhere. But it’s worth talking to your accountant.

Of course, you can just continue to hold on to your “new” house for another five years. After that, it will be “old” again and thus won’t attract GST. Simple, really :-s
 
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Reply: 1
From: Bob Quiggin


Call me a cynic, but I can't see you fronting up to the tax commissioner and getting away with "Yes I subdivided, developed and sold at a profit, but I'm just an innocent babe-in-the-woods property developer, so you wouldn't really want to hit me with GST, would you?".

But you can try it :)
 
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Reply: 2
From: Dale Gatherum-Goss


Hi

Yes, your accountant is right on this matter and although you wrote: "I doubt that the ATO is going to be chasing after people who innocently find themselves in this situation as it surely isn’t the intent of the law"

I'd like to suggest that you don't know the tax office very well, do you?

You, me and most of the people on this forum don't have the fire power or nerve to fight back when attacked and so we're easy targets when the tax office does decide to attack.

Be prepared!

Dale
 
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Reply: 3
From: Simon St John


This is certainly a cautionary note to those who are considering subdivision of their own land.

Just wondering if Michael Y might like to add something on this point. How does he advise his clients in handling the GST aspect of subdivision?

Hope you catch this Michael!

Cheers, Simon
 
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Reply: 4
From: Felicity W.


I'm not quite clear on this...
My mum has sold off a bit of land to a developer, subject to council approval for the subdivision and plans for a unit.
Does this put my mum in this situation? Or is she not the developer in this case?
Keep smiling
Felicity :cool:
 
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Reply: 4.1
From: Dale Gatherum-Goss


Hi Felicity!

Can you tell me more about this situation please? I'd need to know more about the land that was being sold.

That is - was the land always just a block of land? Or, was this the house block that is being sub-divided and sold? Lastly, did mum sub-divide or is the developer doing this?

You can email me off site if you like?

Dale
 
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Reply: 4.1.1
From: Ctrader .


Dale,

In light of recent discussions, could you verify if this statement is correct?

"A house built, owned and lived in by an owner builder would be classified as a new home for GST purposes because it has not previously been sold as a residential premise.

Nevertheless, where the owner builder acts in a private and not a business capacity in constructing a house for use as a private residence and then sells it, there will be no GST payable on the sale but the owner builder will not be entitled to any input tax credits for any GST paid on materials and equipment to build the house.

It is only where builders construct and sell homes in the course of carrying out an enterprise that GST will apply."


Ctrader
 
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Reply: 4.1.1.1
From: Dale Gatherum-Goss


Hi

A lot depends upon the facts of each particular case. In general,YES, this is correct. However, the answer might also change if the builder was in a habit of doing this on a regular basis.

Issue 11.2.4 of the tax office's "Property & Construction Industry Partnership - Issues Register" confirms that the sale will be subject to GST unless the sale was a private matter, and always was intended to be a private matter.

The facts will include the length of time the builder has lived in the house and how often he builds himself a house only to sell it a little while later.

As you can see, the builder's intention when constructing the house is particularly relevant.

And, it gets even more complicated if the builder intends to sell; doesn't so moves in for a year or two, and then sells. It's then an accounting nightmare!!!

I hope that this helps.

Dale
 
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