Property Tax Tips: Goods and Services Tax (GST) – buying, selling & leasing property

Since the introduction of the Goods and Services Tax (GST) in 2000, it has made life a little more complicated for property investors. Knowing when GST applies can be confusing as it differs across a range of situations such as commercial versus residential investments and also when a property is new or second-hand.

Let’s start by discussing whether a property investor needs to register for GST. You must register for GST if you are running an enterprise and have an expected turnover of ‘taxable supplies’ in excess of $75,000 per year. Renting property would be considered an enterprise; however what’s considered a taxable supply does vary. If you do not meet these criteria, then it is your choice whether to register or not.

To help explain, I’ve compiled a brief rundown to common questions below:

Do I need to charge GST to my tenants?

GST only applies to ‘taxable supplies’. In the case of residential property, it is generally referred to as an ‘input taxed’ supply. This means GST is not applicable and you cannot charge GST on the rent of the property. So if all the income you receive is from residential rents you do not need to register for GST. And due to being input taxed, you cannot claim GST credits for your expenses in regards to the property such as property management fees or repairs. The GST paid can however be deducted as an expense from your income for income tax purposes.

If however the property is an industrial or commercial property, then rent in this situation is usually a taxable supply and can be subject to GST if you are registered. You can therefore also claim your GST expenses under these circumstances.

Is GST applicable when buying and selling residential property?

In general, residential property is not considered a ‘taxable supply’ as already mentioned. Therefore sellers do not charge GST on the sale and buyers do not pay GST on the sale. However, new properties have a different set of rules. As a developer or builder of the new property must be registered for GST, they are required to collect GST on the sale of the property. The GST component will be included in the advertised price. As such, those who purchase new properties are effectively paying a premium by way of the additional GST charge which can not be claimed back. Also bear in mind new properties are only subject to GST the first time they are sold and not on any subsequent sales.

Will I be paying GST if purchasing a vacant block of land?

Yes, you will more than likely be paying GST as land is considered a ‘taxable supply’. Many in the past have thought that a residential block of land would be considered a residential property by the Australian Tax Office (ATO) and therefore categorised as an input taxed supply. However, recent private rulings have shown this is not the case.

Please consult your accountant before making any decision that may be impacted by GST, as your individual circumstances and the specific definitions of various aspects by the ATO may alter your decision. Stay tuned for next month’s edition where we’ll look at the application of GST to building, renovating and developing property.

Momentum Wealth and its affiliated entities are not Accountants. While all information is provided in good faith, you should seek your own independent advice in relation to all tax matters.