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GST for those in the business of renovating to sell houses

by | Oct 27, 2014 | General, Property Taxation, Small Business, Tax Planning

A client was wondering how to treat the GST, on a typical example –

  • Buys a house from a person not registered for GST for $300,000
  • Does the renovations at the cost of $55,000
  • Claims the $5,000 GST, then sells the property for $410,000

Question – Is GST Payable on the full selling price? Or, is there some kind of allowance for the fact the original purchase price was GST Free?

Issues to consider –

As a general rule residential homes are (GST Free), even if the sale is made in the ordinary course of business. The only exception is for commercial residential premises (hotel, motel, bed & breakfast, hostels) or new residential homes.

2 For an existing home to be treated as a new residential home it must have substantial renovations – the ATO provides detailed guidance on what it considers substantial renovations at GSTR 2003/3

If substantially renovated then the house will be treated as a new residential premise and GST will apply on the full sale price unless the margin scheme is applied to reduce the GST (margin being $410,000-300,000 = $110,000/11 =$10,000).

If not substantially renovated the house is (GST Free) and the business would not be able to claim GST on the renovations or charge GST on the Sale.

Umbrella Accountants – Property Accountants Brisbane

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