ILN: BUYING AND SELLING REAL ESTATE - AN INTERNATIONAL GUIDE

[BUYING AND SELLING REAL ESTATE IN AUSTRALIA]

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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. 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 non-taxable (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 non-

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:

If the property was owned by the vendor as of 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).

If the property was owned by the vendor as of 1 July 2000, then GST is calculated on the margin or difference between the valuation of the property as of 1 July 2000 and the sale price. If the property was acquired by the vendor after 1 July 2000, then GST is calculated on the margin or the difference between the acquisition cost (i.e., what the vendor paid for the property) and the sale price (i.e., what the vendor is now selling the property for). Assuming the margin scheme is available, the parties must agree in writing that it applies. Such agreement is usually contained in the contract, but it can sit outside of the contract. GST Withholding Regime Since 1 July 2018, purchasers of certain types of residential premises and potential residential land are required to withhold GST and pay it to the ATO. The withholding regime applies to supplies by way of sale or a long-term lease where the contract is entered into:

taxable 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 it can be applied. Generally, a vendor can only sell property using the margin scheme if they

On or after 1 July 2018; or

• Before 1 July 2018 where the first consideration (excluding the deposit) is received on or after 1 July 2020. The GST withholding regime applies to supplies for:

ILN Real Estate Group – Buying and Selling Real Estate Series

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