Property Development and GST

New versus existing residential premises

The distinction between 'new' and 'existing' premises is the central GST question in property. New residential premises (taxable at 10%) are those that have not previously been sold as residential premises and not been subject to a long-term lease, or have been created through substantial renovations, or built to replace demolished premises on the same land. Existing residential premises are input-taxed (no GST on sale, no input tax credits for the vendor).

The margin scheme (Division 75)

The margin scheme changes how GST is calculated, not whether the supply is taxable. GST equals 1/11th of the margin (sale price minus eligible acquisition value). You can generally use the margin scheme where the property was acquired from a vendor who was not GST-registered, or from a vendor who also used the margin scheme. You generally cannot use it where you acquired the property as a fully taxable supply on which you claimed full GST credits. A written agreement between supplier and purchaser must exist at or before settlement.

Going concern: GST-free commercial property (s 38-325)

A sale of commercial property as part of a supply of a going concern can be GST-free under s 38-325, interpreted in detail by GSTR 2002/5. All five requirements must be met: consideration is paid, the recipient is GST-registered, both parties agree in writing that the supply is of a going concern, the supplier provides all things necessary for continued operation, and the supplier carries on the enterprise until the day of supply (settlement). A fully leased commercial building with tenancies and actively marketed vacancies can qualify. If any element fails (vendor terminates all leases before settlement, stops the business), the sale reverts to a standard taxable supply with 10% GST.

Substantial renovations and the GST trigger

Substantial renovations create 'new residential premises' under s 40-75(1)(b), making the first sale by the developer taxable at 10%. The test requires that all, or substantially all, of the building has been removed or replaced and the renovations result in the building being substantially different in nature. This is central for reno-to-sell developers: heavy structural renovations push the exit sale into the GST net.

GST withholding at settlement

Since 2018, purchasers must remit GST directly to the ATO on most sales of new residential premises and certain potential residential land in subdivisions by GST-registered vendors. The vendor must notify the purchaser in writing whether withholding applies. The ATO credits the withheld amount against the vendor's GST liability on their BAS.

GST registration and input tax credits

Developers must register for GST if turnover from taxable and GST-free supplies reaches $75,000. Property development projects commonly exceed this threshold. Where a developer makes taxable or GST-free supplies, input tax credits can be claimed for GST on construction costs, trades, materials, professional fees, marketing, and certain holding costs. Apportionment is required where the development mixes input-taxed and taxable supplies (for example, part residential leasing and part sale of new premises).

The 5-year rule

Premises that were once 'new' stop being new under s 40-75(2) if they are used solely to make input-taxed supplies of residential rent for at least 5 continuous years, with no substantial renovations in that period. After 5 years of input-taxed residential letting, the premises are treated as 'existing' and a subsequent sale becomes input-taxed rather than taxable. This rule is critical for developers who hold completed stock as rental properties before selling.

Statute references

• A New Tax System (Goods and Services Tax) Act 1999 Division 40 (input-taxed supplies, residential rent, existing residential premises)
• GST Act 1999 s 40-75 (definition of 'new residential premises')
• GST Act 1999 s 40-65 (existing residential premises, input-taxed)
• GST Act 1999 s 38-325 (GST-free supply of a going concern)
• GST Act 1999 Division 75 (margin scheme)
• GSTR 2002/5 (when a supply of a going concern is GST-free)
• ATO 'GST at settlement' guidance (withholding rules for new residential premises)
• GST Act Division 75 (margin scheme for taxable supplies of real property)
• GSTR 2006/8 (margin scheme — calculation method, eligibility, written agreement requirement)
• GST Act Subdivision 38-J (going concern) and GSTR 2002/5 (Commissioner's view on going-concern conditions)
• GST Act Division 129 (adjustments where intended use changes — input tax credit clawback for residential premises)
• GST Act ss 14-250 to 14-255 (purchaser GST withholding on new residential premises — from 1 July 2018)

Frequently asked questions