Land sales and GST: What you need to know
GST rules around the sale of land can be confusing but it is essential that the GST status of the vendor and the purchaser are clear at the time a sale and purchase contract is completed.
It is most important when transacting land that the sale and purchase agreement clearly states the GST status of the vendor and the purchaser and whether the purchase price is “Plus GST (if any)” or “Inclusive of GST”.
Generally, the sale price of residential property that is a main residence will be inclusive of GST, and the Vendor will confirm this on the Sale and Purchase agreement by stating they are not registered for GST. However, if the vendor is registered for GST then Schedule 1 of the Sale and Purchase agreement must be completed, and care taken when answering the questions – this includes disclosures regarding using the property to make taxable supplies.
There can be complications where a residential property has a business element – for example where buildings (such as a workshop, storage shed, or standalone office) are located on separately identifiable land and used to make taxable supplies. In this instance there may be more than one supply type for GST purposes in the one transaction.
Commercial property is most likely to be business related and if both vendor and purchaser are GST registered, the transaction will be zero rated, based on there being a land component to the transaction.
Generally, there will be three key parties in a transaction that need to be communicating effectively: you, your solicitor, and your accountant. Ideally, we would be provided with a copy of the Sale and Purchase agreement well before signing so we have time to understand your intentions and circumstances. We often see situations where communication is not effective, and changes are required to ensure a positive outcome for our clients. If we find errors after settlement, there can be significant complications and potentially an unexpected GST bill.
If you are selling or purchasing land, we suggest that you discuss the matter with your Leech & Partners manager to ensure that the GST status of the parties is clearly understood and stated.
