Residential Property and GST

Generally the sale of residential property is not subject to Goods and Services Tax (GST).  However …

Facts

  1. A superfund purchased vacant land on which it built a house for the purposes of long-term renting.
  2. The superfund received an offer it could not refuse upon the building being completed and therefore sold the completed vacant dwelling to the third party.
  3. The solicitor failed to indicate that the transaction was subject to GST on the basis that the sale was not in the “course or furtherance of an enterprise” a requirement for GST to be imposed.
  4. Another requirement for GST to be imposed is that the seller must be registered or required to be registered for GST.

Generally a one-off sale is not in the course of or furtherance of an enterprise when the intention was to retain the development for long-term renting.  However, Section 90.20(I)(da) defines an enterprise to include an activity or series of activities done … by the trustee of a complying superannuation fund … .”

Because the superfund made the sale in connection with an enterprise and because the sale price was in excess of the threshold of $75,000, the superfund should have been registered for GST purposes.

Result

The sale was subject to GST and the contract did not provide for the purchase to be liable for GST and therefore the superfund’s sale profit was reduced by the GST imposed on the sale price.

Worst still, because the solicitor failed to recognise that the sale was subject to GST, the Margin Scheme proposals were not utilised and the superfund could not therefore claim any GST input tax credits on the cost of the development.

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