GST Q&A

This section answers some of your questions on the Goods and Services Tax.

Author Max Newnham, an accountant, business commentator (The Age and Sydney Morning Herald) and advisor with 25 years taxation experience shares his knowledge with us.

Order a copy of Max's new book - essential reading for all business people preparing for the GST - 'The GST Survival Guide'.

Do you have a question about:

• Buying your first home
• Buying a residential property
• Selling the family home
• Tenants and GST
• Landlords and GST
• Sales of new properties off the plan
• GST and a property part commercial and part residential
• GST and Queensland investment units

 Buying your first home

Question

We are thinking of buying our first home. Are we entitled to the First Home Owners Grant?

Answer

The First Home Owners Scheme (FHOS) is an initiative by the Federal Government but administered by each State and will apply from July 1, 2000.

The scheme is not means tested and does not vary depending on the value of the home. The only requirements are that it be your first home, and principle place of residence. Neither you nor your partner should have owned property before.

The contract must be signed after 30/6/00 and the assistance is deposited into a nominated bank account on settlement.

The Tax Office web site has a useful fact sheet at http://taxreform.ato.gov.au/factsh/1999/nat3023/index.htm

You can also contact the State Revenue Office (usually in Treasury) for your State. Your chosen real estate professional may also be able to help.

Also try the relevant web site:

The Federal government is hoping that State governments will remove stamp duties now being charged by 1 July 2005.

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Question

I will be buying a house in March next year. How will the GST affect me?

Answer

For individuals and businesses that are registered, the GST treats properties differently depending on whether they are new or established and whether they are for domestic or commercial purposes.

All new residential properties purchased after 1 July 2000 will have GST charged on the cost of the property and all other purchase costs.

No GST will be charged on the purchase cost of established residential properties. The definition of an established residential property is one that has not been sold before. Residential properties include houses, flats, apartments, units, etc.

When someone purchases a property the costs they pay will depend on whether it is an established property or it is being built. Established properties would include houses that have been built several years ago or a new house purchased after the builder has completed it.

A purchaser pays legal fees, conveyancing fees, costs associated with obtaining notices from councils and other authorities and stamp duty based on the purchase price.

Where anyone buying or selling a property pays costs to someone who is registered for GST they will have GST included in the cost they pay.

The Federal government is hoping that State governments will remove stamp duties now being charged by 1 July 2005.

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 Selling the family home

Question

We are thinking of selling our home where we have lived for seven years. Will we have to pay GST on the sale?

Answer

There have been a lot of questions on how GST will affect residential and commercial properties and other charges associated with buying and selling property. The first principle to understand is that only businesses and individuals registered for GST can charge GST. If you are not registered for GST you cannot charge GST no matter what sort of property you are selling.

A vendor pays legal fees, agents fees, advertising, etc. Where anyone buying or selling a property pays costs to someone who is registered for GST they will have GST included in the costs they pay.

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 Tenants and GST

Question

I am a tenant. Do I have to pay GST or will my landlord?

Answer

Only commercial tenants pay GST. Where a landlord does not have an agent they will collect the GST. Landlords registered for GST with agents or property managers will have GST collected on their behalf. They will receive the rent including the GST from their agent on all commercial rents.

GST will also be included in collection fees and other charges levied by agents.

Landlords registered for GST will have to pay the net amount of GST collected. This will be equal to the GST collected less any GST included in agent’s fees.

Residential properties will not have GST charged on the rent by property owners and the property owner will not get a credit for any GST paid by them.

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 Landlords and GST

Question

I am a landlord. Do I have to pay GST or will my tenant or my real estate agent?

Answer

Only commercial tenants pay GST. Where a landlord does not have an agent they will collect the GST. Landlords registered for GST with agents or property managers will have GST collected on their behalf. They will receive the rent including the GST from their agent on all commercial rents.

GST will also be included in collection fees and other charges levied by agents.

Landlords registered for GST will have to pay the net amount of GST collected. This will be equal to the GST collected less any GST included in agent’s fees.

Residential properties will not have GST charged on the rent by property owners and the property owner will not get a credit for any GST paid by them. However, many of the costs associated with running and maintaining a rental property will be tax deductable as they have previously been.

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 Sales of new properties off the plan

Question

I have some questions relating to GST and sales off the plan.

c) Will this effect the current trend of "buying off the plan" to save stamp duty?

Answer

a) When someone purchases a property the costs they pay will depend on whether it is an established property or it is being built. Established properties would include houses that have been built several years ago or a new house purchased after the builder has completed it. In these cases the purchaser pays conveyancing fees, costs associated with obtaining notices from councils and other authorities and stamp duty based on the purchase price. Where a person contracts for a building to be constructed, either with a builder or a property developer, the only cost they save is stamp duty as no stamp duty is paid on the construction costs.

b) The GST system treats properties differently depending on whether they are new or established and whether they are for domestic or commercial purposes. All commercial properties purchased after 1 July 2000, and new residential properties, will have GST charged on the cost of the property and all other purchase costs.

Initially stamp duty and GST will be payable on new residential properties and all commercial properties. The Federal Government hopes that this extra GST cost will be offset by the removal of state stamp duties. A ministerial council will review a range of state imposed taxes and charges, including stamp duty on properties, with a view to removing or reducing them by 2005.

c) No GST will be charged on the purchase cost of established residential properties. This clearly reduces the cost benefit of buying residential properties off the plan. There will still be a cost benefit for commercial properties because when a registered business pays GST they can claim a credit for the GST paid. This effectively means that the GST will not increase the cost of commercial properties.

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 GST and a property part commercial and part residential

Question

My wife owns a shop with a separate dwelling. The shop is let and my wife and I occupy the dwelling which is separate from the shop. Should she have the property valued at 1 July 2000? If so, why? If she wants to sell the property after 1 July 2000 how does she deal with the GST?

Answer

The decision whether to have the property valued will not have to be made before 1 July 2000. The Tax office have stated that the valuation of a property can be done after that date as long as the valuation is done before the end of the GST reporting period after a property has been sold. GST may be payable on the sale of a building when the entity or person who owns the property is registered for GST. If your wife does not earn more than $50,000 in income a year from her business, she will not have to register for GST and will not have to charge GST on the sale or the leasing.

Where someone is registered for GST, and they sell a property, it would appear that GST would have to be included in the price when it is sold. There are two methods that can be used to calculate GST payable on properties sold. The amount of GST payable will be, either 10 per cent of the selling price or, 1/11 of the increase in the value of the property after 1 July 2000 to the date of sale. In most cases the second method will give the lowest GST payable but the purchaser will not be entitled to an input tax credit if this method is adopted.

If your wife had been registered for GST, and she wanted to minimise the amount of GST payable, a value at 1 July 2000 would need to be established. In addition the valuation would need to have separate values placed on the business premises and the residence. The sale of residential premises, excluding new premises, do not have GST charged on their sale. The sale of commercial premises do attract GST where the seller is involved in buying and selling properties and is registered for GST.

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 GST and Queensland investment units

Question

I have a holiday unit in a managed resort complex in Queensland. The income from the property is around $22,000 p.a. out of that is taken management fees, cleaning costs, advertising levy, credit card charges, maintenance costs, electricity and body corporate fees and rates. As these costs amount to about $15,000 I can see my GST bill being $1500. The units are let out by the Management Company. Will GST charged on the holiday rentals be in my name or the name of the Management Company? How should this be organised?

Answer

The first thing to get clear is your relationship with the managing agents for your unit. As they do not own the unit, and are acting in the capacity as your agent, it will not be them that can charge the GST. The question of whether GST will be charged is dependent on whether you are registered for GST. Since your income is well below the $50,000 turnover threshold you will not have to register for GST. If you decide to register you would need to advise your agent so that they could charge GST on the rental of the unit on your behalf.

If you registered for GST you will be entitled to input tax credits for the GST paid on various expenses related to the unit. Alternatively, if you decide not to register you will not be required to charge GST on the rental of the unit, however, you will not be entitled to input tax credits on the GST paid on expenses in respect of the unit. The Management Company is supplying the service of managing, whereas you are supplying the accommodation.

If the Management Company is registered for GST they will charge GST on the services they supply such as commissions and repairs they do. The GST will be a bigger headache for the property managers than you. They will need to contact each of the property owners they act for and establish whether they are registered for GST. For those owners who are registered they will need to deduct GST from any rent received. This could lead to some units having a higher rental cost because their owners have either elected, or had to, register for GST.

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Disclaimer

This information is general advice only. Persons should consult a suitably qualified professional adviser to obtain advice tailored to their specific circumstances.