GST and Rental Properties
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In most cases the only taxes property investors have to deal with are income tax and capital gains tax. There are however some situations where a knowledge and understanding of the GST rules is required.
Q. What are the GST consequences of someone building a new residential property to sell? Would your answer vary if the property in question was actually a main residence rather than an investment? Would the subsequent sale of the new dwellings attract GST in that instance?
A. A person or entity must register for GST if they are carrying on an enterprise and the expected GST taxable turnover will exceed $75,000. Carrying on an enterprise means where something is done for the purpose of making a profit. In the Tax office ruling setting out what constitutes carrying on an enterprise the activity of sub-dividing land and building a unit to sell is classed as carrying on an enterprise.
As most properties would have a selling value of more than $75,000 the activity of subdividing a property, demolishing the existing residence, building two units with one to be sold and the other one to be lived in, would result in the carrying on of an enterprise. If on the other hand the existing home was not demolished and only one unit was built, which would become the owners home, that is not carrying on an enterprise.
Where a person must register for GST they can claim all of the GST they pay related to the residence they will be selling. They must also include GST in the selling price if it is sold within 5 years of it being completed. If the property is sold after five years GST is not included in the selling price.
Q. As an owner of a rental property do I need an ABN to be able to claim back the GST portion which has been paid on any on-going property expenses etc?
A. In most cases people that own rental properties do not need to have an ABN. To be able to claim GST paid on expenses a business must be registered for GST and be earning GST taxable or exempt income. Income received from domestic properties is classed as input taxed income. Under this GST category no GST is charged and no claim can be made for GST paid on expenses related to the earning of that income.
In your situation if you are renting commercial properties this would be classed as GST taxable income. If you are earning more than $75,000 a year you would need to be registered for GST and include GST in the rent your charge. You could then claim GST you paid on the expenses relating to that property.
If you only own residential property there is no need to register for GST and there would be no point in registering. This is because residential rentals are classed as input taxed and you could not claim the GST paid on the rental expenses.