[BUYING AND SELLING REAL ESTATE IN AUSTRALIA]
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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:
This means that no GST is payable. Even if the property is owned by a company, provided the property has been used as residential premises, it will be input taxed. New residential premises, the sale of new residential or commercial residential property will attract GST if sold in the course of an enterprise. Mixed Supplies Certain supplies of property are considered to be a “mixed supply.” That is, both taxable and nontaxable (i.e., input taxed) for GST purposes. An example of a mixed supply is the sale of commercial or retail property, which also has existing residential premises. It is important that the contract deals with the mixed supply issue. It will be necessary to apportion the price and determine what portion of the property constitutes the taxable supply and the nontaxable supply. Margin Scheme If GST is payable on a property transaction, the amount of GST payable can be reduced if the vendor can adopt the margin scheme. Developers prefer to apply the margin scheme (if it is available) to the calculation of GST. It is important to understand that the margin scheme is not automatically available. Certain criteria have to be satisfied before they can be applied. Generally, a vendor can only sell property using the margin scheme if they purchased the property using the margin scheme, or no GST was payable. The application of the margin scheme will differ depending on when the property was acquired:
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 of GST from the purchaser. It is important for the claw back provision to remain enforceable after settlement has occurred for a certain period of time in case there is an issue. It is not uncommon for a claw back provision to remain enforceable for a number of years after settlement. Input Taxed Supplies The sale of existing residential property (i.e., not new residential property) is input taxed.
If the property was owned by the vendor as at 1 July 2000 (i.e., was acquired before 1 July 2000 when GST was introduced); or If the property was acquired by the vendor after 1 July 2000 (i.e., after GST was introduced).
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ILN Real Estate Group – Buying and Selling Real Estate Series
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