How can you find out if your real estate sale will trigger a liability to pay Goods and Services Tax (GST)? If you are the vendor of residential real estate in a typical real estate transaction, then it is highly unlikely that you will have to pay GST on the sale. However, you are ultimately responsible for determining your tax position, and so it is important to do some homework on the GST and how it may affect your property sale.
GST – The general principle
The general principle regarding GST is that it is a tax on supply. In other words, the person who is making the “taxable supply” (the vendor) is the person who has to pay the GST. The purchaser pays the GST when the seller’s contract with the purchaser requires the purchaser to pay, or to reimburse the seller, for the GST the seller is required to pay. Most people will be familiar with prices advertised as $+GST.
Thus, although it is the seller who must pay the GST to the Australian Tax Office, GST is ultimately paid by the consumer.
The difficulty with GST is in determining whether or not it is payable by the seller, so that the seller knows when to require the purchaser to add it to the cost of what is being purchased.
GST in real estate sales
No GST on second-hand residential real estate
GST is NOT payable on the sale and purchase of “residential premises”, unless the property being sold is new property. So, the sale of “second-hand” residential real estate (e.g. a home or apartment that someone has lived in) will rarely trigger a GST liability. So, in most ordinary sales of residential real estate the vendor will not be required to pay GST, and the purchaser cannot be made liable to pay an amount for GST. It doesn’t matter if the property is owner-occupied or an investment property; so long as it is a residential property and it is not new, it will be GST exempt.
(NOTE: Vacant land cannot be “residential premises”. If you are selling vacant land you must assume that GST will be payable unless your tax accountant assures you otherwise.)
Sometimes it can be difficult to determine whether a property is “residential premises” for GST purposes, and this is where good advice becomes essential.
What to do if you are unsure
There is an excellent page of information on the website of Interactive Tax Consultants titled, “Vendor guide on GST treatment of residential premises“.
Other sources of GST information are the webpage titled “Property – GST and Property – Residential Premises” at the Australian Taxation Office website, and an article on the website of King & Wood Mallesons titled “Meaning of “residential premises” for GST purposes – New GST ruling released” which may be useful.
However, if you remain unsure as to whether your property can be said to be “residential premises”, or if it has been used for some form of commercial purpose, or if for any other reason you are unsure of its GST status, then it is essential that you obtain personal tax advice from a qualified accountant. A tax accountant will probably be more up to date on GST matters
If the property you are selling is owned by a company, or is held by a trust, then it is even more important that you obtain advice from your accountant as other tax implications may arise.