Developers and Builders

The new GST legislation requires purchasers of new residential premises and new subdivisions of potential residential land to make a payment of 1/11th of the purchase price direct to the ATO from 1 July 2018. It can be a pain!

The proposed measures will apply to supplies of new residential premises, or new subdivisions of potential residential land. The measures are intended to cover house and land packages, where a purchaser may receive a taxable supply of a vacant block of land which is the subject of a property subdivision plan.

To ensure that supplies of new subdivisions of potential residential land between members of a GST group, or participants in a joint venture to the operator of the joint venture are not considered to be the first supply, supplies of that type are specifically excluded from the proposed measures. This is to ensure that the supply to the end user for consideration is where the withholding obligation arises, and prevents the interposition of certain structures or arrangements to deliberately avoid the withholding obligation arising at that stage. An analogue to this rule is used in the definition of new residential premises, so it is not necessary to exclude supplies of that type from that definition.

It is also vital to understand and use margin scheme correctly. 

The Margin Scheme is a system created for property market, GST is applicable on the margin (difference between the sale price and the original consideration of supply), however, conditions and exemptions are also applied subject to different treatment.

  • Recognition of the development and construction costs over the course of a job
  • Criteria in meeting the eligibility for deduction following the completion of a job
  • Should you decide to carry on a business of property under a business structure of trust
    • Renovating a property or;
    • Activity of sales

As part of the amendments of the NSW Government’s New Tax System, the margin is the GST inclusive price of sales net of the original purchase price, whereas GST under previous system was not claimable. The current Scheme is provided for under Div. 75 of the current Tax system, which is available on the sale on the basis of taxable supply for property by

  • Selling Freehold interest in land
  • Selling stratum titled units
  • Granting a long-term lease 50 years +

The legitimacy of the Margin Scheme can only be valid on a written agreement between the vendor and purchaser, most importantly, the eligibility for sale is effective where property sales are:

  • From a vendor sell the property to you through the margin scheme
  • Individuals/entities that have not been registered or required for GST, (Parents sell family home to a builder/developer)
  • The Sale is GST-Free
  • Sale under the GST concession, provide all previous sales were eligible for the Margin Scheme

The liability for the GST remains the same with the developer as no changes to lodgement of developer/builder Business Activity Statements. Developer can make a claim on GST credits for construction costs and purchases related to the sales. Check your eligibility to use the Margin Scheme, if eligible, the GST liability is one-eleventh of the margin on the sale of the property instead of the total selling price, come to Tax Ideas Accountants & Advisers for detailed information and advice & find out more through our online resources flyers.