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Australian Lawyers and Consultants

New GST Impact for Property

April 2003

Unlike the sale of "second hand" commercial property, sale of "second hand" residential property does not require the imposition of GST - because GST is added only to "new" residential property and not "old" residential property.

However, even for commercial properties, there may be ways in which GST may not have to be charged. For example, in the case of a sale of commercial rental property, it is often possible - though not always - for the arrangement to be a "supply of a going concern" (the relevant ruling is GSTR 2002/5).

A recent final ruling GSTR 2003/3 spells out what will be considered "new" residential premises (and therefore "taxable"). "New residential premises" can arise through substantial renovations of a building. In particular, two things must occur:

1. the renovations need to affect the whole building. In order to affect the whole building, work must be done to the whole or large part of the building; and
2. the renovations result in a removal or replacement of a substantial part of the building. Cosmetic work does not give rise to substantial renovations.

It should be noted that it is only the current owner’s renovations that are relevant. In addition, where renovations occur progressively, it is the cumulative effect that is taken into account as to whether they are ‘substantial’.

It is important to note a difference between the draft ruling and the final ruling. The final ruling now states (as opposed to the draft) that a subdivision in itself might not convert the property into "new" property.

Real estate transactions, though commonplace, are very individual in terms of the GST ramifications. This is because the GST implications, and planning opportunities, can be dependent on a myriad of factors including: whether the premises are "new"; the purchaser’s GST status; the Vendor’s and the Purchaser’s BAS period; the type of activities performed on the land; and the intended activities.

For further information, contact Joe Lederman at BALDWINS, Australian Lawyers & Consultants.

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