With the property market continuing to grow, more people are buying, developing and selling property.
However, many are unaware that GST may apply to their transactions. A common and costly mistake is assuming that GST only affects developers or those who are formally running a business.
GST can apply when a property is sold for payment, the sale is connected to Australia, and the sale forms part of a profit-making activity. More importantly, GST can still apply if you should have been registered for GST, even if you never actually were.
Many people won’t need to register for GST at all. For example, selling your family home or earning residential rental income will generally not trigger GST.
Problems arise where property activities go beyond private use and start to look commercial. This can happen where land is bought with the intention of developing and selling it at a profit, particularly where there is subdivision, rezoning, or the use of professional advisers to increase the property’s value. If total taxable turnover from these activities exceeds $75,000, GST registration may be required.
Recent Tribunal cases show that the ATO and the courts will focus on what you actually do, not how you describe it. In one case, a landowner who subdivided, rezoned and sold land argued that he was simply selling a private asset.
The Tribunal disagreed, finding that his actions showed a clear intention to enhance the property and sell it for profit. In another case, a self-managed super fund was required to pay GST on subdivided land sales even though it had deregistered for GST before the development began. In both cases, the argument that the sales were merely a one-off or the sale of a long-held asset was rejected.
The key message from these decisions is that significant development work and a clear profit motive can turn what might feel like a “one-off” sale into a commercial venture for GST purposes. Where activities look like trade, GST is likely to apply.
Property GST rules are complex and often misunderstood, and the cost of getting it wrong can be substantial. If there is any doubt about whether your property activities could trigger GST, it is important to seek advice early and plan ahead. If you would like to discuss this further, please contact our office.