[BUYING AND SELLING REAL ESTATE IN AUSTRALIA]
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factored in when considering the purchase price. If GST is payable on a property transaction (i.e., the four threshold requirements have been satisfied), then the supplier (i.e., vendor) must provide the purchaser with a tax invoice for the GST. A contract of sale is not usually a valid tax invoice. Stamp Duty is payable on the higher of market value and the purchase price for the
Australia (transaction must occur in Australia); Registered entity (supply must be made by an entity registered for GST); and Enterprise (supply must be made in the course of an enterprise).
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Just because a vendor is not registered for GST, does not mean that GST is not payable on the transaction. GST can still be payable if the supplier is not registered for GST but is required to be registered for GST. To avoid unexpected GST liability, it is important that the right questions are asked at the outset and legal and accounting advice is obtained. Whether Price Inclusive or Exclusive of GST In property transactions, it is the vendor as the supplier of the property who is primarily liable to remit the GST to the Australian Taxation Office (“ ATO ”). If GST is payable, then purchasers should pay attention as to whether the price for the property is inclusive or exclusive of GST or GST free. If the purchase price is exclusive of GST, the additional cost of GST can be significant, depending on the price for the property. The imposition of GST is an important consideration for a vendor when preparing the contract of sale. If a vendor expects to receive a certain price for the property, then GST needs to be factored into the price. Otherwise, the vendor could receive 10% less at settlement. How GST is dealt with under the contract is important. For example, if a vendor expects to receive a particular price for a property, then the price should be stated in the contract as GST exclusive. There should be a provision which requires the purchaser to pay or reimburse the vendor for GST in addition to the price. Similarly, for a purchaser, GST is an important consideration when purchasing a property. The imposition of GST needs to be
property plus GST. GST Free Supplies
Not all supplies of property will attract GST. Some supplies are treated as being GST free (i.e., no GST is payable). The following are examples of GST free supplies: Sale of a farm In order for the sale of a farm to be GST free, the property must have been used as a farm for 5 years before the sale. Going Concern The sale of leased commercial/retail or industrial property can be GST free. This is referred to as the “going concern” exemption. In order for the exemption to apply, certain criteria must be satisfied:
The purchaser is registered for GST;
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The vendor and purchaser agree in writing that the supply of the property is that of a going concern; The vendor must supply everything necessary for the continued operation of the enterprise (i.e., the enterprise of leasing); and The vendor must carry on the business until settlement.
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If the going concern exemption is not satisfied, it is critical that the contract contains a claw back provision for GST. The claw back provision will enable the vendor to recover the amount
ILN Real Estate Group – Buying and Selling Real Estate Series
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