haskins
 

GST

There are many variables to consider where GST is concerned and no one has the full knowledge to address them.

Clients that regularly buy and sell residential properties will need to consider the application of GST on residential property to avoid any issues arising in the future. It is recommended that regular buyers and sellers of residential real estate ensure they have addressed the matter of GST with their accountant. These clients should also ensure that any contracts they enter for the sale or purchase of residential real estate deal with the issue of GST if it is applicable.

In the sale of commercial, industrial or retail properties basic enquiries should be undertaken to establish the GST registration or otherwise of the Seller and Buyer. Special care needs to be taken in reading and understanding the various GST clauses which form part of these Contracts.

BASIC PRINCIPLES OF GST

Remember the following essential elements of a taxable supply when dealing with GST and property:

  1. a supply for consideration
  2. in the course and furtherance of an enterprise
  3. the supply is connected to Australia
  4. the entity making the supply is registered

The fourth point is the crucial one for considering whether or not GST applies to the sale of a property.

Also note the following:

  • An entity (e.g. an individual, company, or Trust) can obtain an ABN it may be that they are not required to register for GST.
  • If an entity has no ABN they cannot register for GST and they cannot charge GST on the supply of a property.
  • If an entity has an ABN but is NOT registered for GST they cannot charge GST on the supply of a property.
  • In order to charge GST on the supply of a property the entity MUST have an ABN and MUST be registered for GST.
  • For the Going Concern Provisions to apply the Seller and Buyer must both be registered for GST. Though some advice that has been obtained has indicated that the status of the Buyer may not be an issue.
  • For a Buyer to claim an input Tax Credit for the GST paid in addition to or included in the purchase price the Buyer must be registered for GST.
  • GST paid on the Margin Scheme cannot be claimed as an input tax credit by a Buyer and as such the Seller is under no obligation to provide a Tax Invoice.
  • If GST on the Margin Scheme is payable in addition to the purchase price the Seller must provide details of the amount of GST payable and how it has been calculated, so the Buyer will know what to pay in addition to the purchase price
  • If GST on the Margin Scheme is included in the purchase price it may not be necessary for the Seller to provide details of the amount and calculation as the Buyer cannot claim an input tax credit for any GST paid.
  • It is the Seller who is responsible for payment of any GST. Whilst the Seller may be able to recover GST from the Buyer by selling the property PLUS GST or INCLUSIVE of GST, it is the Seller that is the entity supplying the property so if the GST issue is not dealt with correctly it is the Seller that the ATO will pursue.
  • GST is paid to the Seller on Settlement and it is the Seller's responsibility to remit the GST to the ATO.
  • The Office of State Revenue (OSR) will charge stamp duty on the GST inclusive price unless you can provide evidence that GST does not apply.
  • OSR Revenue Ruling DA4.0 details what information is required if you wish the OSR to assess duty on the GST exclusive price on the basis that GST is not payable.
  • In all circumstances where GST is mentioned in the Contract you should ensure that the Seller is registered and is able to charge GST.
  • If a Seller is not registered and is not able to charge GST on the supply you will need to ensure compliance with OSR Revenue Ruling DA 4.0 in order for stamp duty to be assessed on the GST exclusive price.

HOW TO FIND OUT IF A BUYER OR SELLER (AN ENTITY) IS REGISTERED FOR GST

  • Go to the ABR Public Search website now known as ABR lookup at www.abr.business.gov.au
  • Select Advanced Search
  • Type in the name of the company/entity you are looking for in the Search Text Box.
  • Hit the search button.
  • This will take you to the Search Results page. This page highlights the exact match and lists the close matches.
  • Click on the name that you require.
  • This takes you to the details for the Entity/Company you have selected. - Print this page for your file, highlight the name, the ABN and GST registration.
  • Have a look at the information. The most important information you need is to establish whether or not the Entity is registered for GST.
  • If an entity is "Not currently registered for GST". This entity cannot charge GST on the supply of a property.

BEFORE TAKING THIS INFORMATION AS GOSPEL, YOU MUST REMEMBER TWO VERY IMPORTANT POINTS.

The first point to remember is that whilst the registered proprietor is NOT registered for GST it may be that the registered proprietor is holding the property in Trust for a Superannuation Fund, a Family Trust or for a Joint Venture Group which is not disclosed on the Offer and Acceptance Contract or Certificate of Title.

It may be that the Super Fund, Family Trust or Joint Venture Group ARE registered for GST.

In order to establish the "real" owner of the property you need to ask this question of the Seller. Ask whether the property is held by the registered proprietor as Trustee for a Trust and also ask for the ABN of the ultimate owner to be provided so that you can check their GST registration.

The second point to remember is that like most websites this one can and does make mistakes. Occasionally we have undertaken a search and nothing at all comes up however once we obtain the ABN we conduct the search again and discover that they are registered.

When all else fails ask the Seller for an ABN.

Duty is calculated on the GST inclusive price and as such it is imperative that the Contract clearly states how the property is being supplied i.e. inclusive of GST/exclusive of GST/Margin Scheme or Going Concern.

If GST is being paid at Settlement whether it is included or addition to the purchase price then the Seller MUST provide a Tax Invoice to the Buyer unless the GST is being calculated using the Margin Scheme.

The original Tax Invoice MUST be collected at Settlement and provided to the Buyer.

The Tax Invoice should contain the following minimum information:

  • Name of the Seller/entity selling the property
  • The entity's ABN (double check this against searches you have undertaken and address any discrepancies)
  • The address of the property being purchased (i.e. what is being supplied)
  • The Buyer's details - ensure that the details are correct (i.e. if the Buyer is Trustee for make sure the full details are shown on the Tax Invoice)
  • The Purchase Price
  • The GST
  • The Total

NB if the GST has been calculated using the Margin Scheme the Seller is NOT obliged to provide the Buyer with a Tax Invoice and as such a Tax Invoice should not be requested. A Buyer cannot claim and input Tax Credit for GST that has been calculated on the Margin Scheme.

WHAT IF THE SELLER IS NOT REGISTERED FOR GST BUT THE CONTRACT PROVIDES FOR GST TO BE PAID?

There have been instances where the Contract provides for a purchase price of say $770,000.00 inclusive of GST of $70,000.00. Enquiries reveal that the entity supplying the property is not registered for GST and as such should not be charging GST on the supply of the property. In this instance it is obvious that an error has occurred in that the purchase price shown on the contract is incorrect.

This discovery should be advised to the Seller and if a seller is in any doubt about whether they are required to be registered for GST they should be directed to immediately seek advice from their accountant or lawyer.

It is the Seller's responsibility to resolve this as quickly as possible and it is also their responsibility to keep their Real Estate Agent and Conveyancer informed of any advice they receive.

Failure by a Seller to resolve this prior to Settlement could result in GST not being collected and should GST apply at any stage in the future then the Seller would be responsible for payment. Depending on the terms and conditions of the Contract the Seller may have the right to recover the GST from the Buyer.

Where the Contract is incorrect in stating that GST is payable the Conveyancer acting for the Buyer must follow the requirements set down by the Office of State Revenue to ensure duty is calculated on the GST exclusive price.

Disclaimer

This information is current as at 1.1.08 and is to be used as a Guide ONLY. It does not replace the requirement for you to obtain their own independent accounting and legal advice and should not be relied upon for each and every GST issue. Each property, each client and each GST situation is unique and should be treated as such.