It is important for property buyers to understand how the GST works in order to make an informed decision when purchasing a property.
In general, the GST is a tax that is levied on the sale of goods and services. The GST is charged at a rate of 7% on the value of the goods or services. However, there are some exceptions to this rule. Properties that are still under construction are one such exception.
Let’s take a closer look at how the GST is calculated on under construction properties and gst registration
What is GST?
The GST is a tax on the sale of business activities and goods, aside from services. The GST is also charged at a 7% user by user rate or reduced rate. However, there are exceptions to this rule.
Of these, under construction properties are the most notable. Exceptions can occur for all business activities, but under construction properties are the only ones that exempt whole classes of deals from GST.
In general, under construction properties are often exempt from the GST because they don’t yet bear substantial tangible benefits.
For example, residential properties are excluded from taxing if they remain under construction for more than 90 days.
Tips to calculate the GST when the property is still under construction with examples
There are two main ways to calculate the GST after completion on properties that are still under construction. It will affect the validity of the sale.
There is also the ability to make sure you know the correct GST calculation on your under construction properties based on the current state of the property as at April 1, 2020, according to documents from the Australian Tax Office.
If your home was under construction at that time, it should be done so if you want to claim benefit of the deferred GST.
Consequences of not paying GST when the property is under construction with examples
Under construction means that the property is not yet occupied, is in a stage of preparation before the furniture and equipment is installed and the architecture is complete and has officially been opened to the general public.
In order to obtain GST exemption when selling an under construction property, a witness is required to verify that that the property is completed and ready for occupation.
How will the GST impact an under construction or buying an under construction property under GST?
When purchasing an under construction property from a builder who has obtained a building permit, the GST is charged at the standard rate of 7% in addition to local government taxes and stamp duty.
However, those looking for an under construction property for investment purposes need to be aware of the potential differences in these taxes. This is because there can be a significant difference between the standard government tax rates on an under construction property and the tax rates charged on a completed property.
Under current law, the GST will apply to completed assets such as houses, apartments, and on new-built residential buildings.
On the other hand, a builder may still be building a concrete slab on an under construction property. This means the GST will notapplyon this property
However, building sheds, gazebos or children’s play equipment, in addition to completed structures, are excluded from GST.
A property developer may be able to afford to pay the GST on an under construction property if the cost savings balances out all of the increased GST they will pay as a construction company.
What if my under construction property will not be covered under GST?
A house, an apartment, and commercial property all fall within the GST classification of goods and services because they are physical assets.
However, properties that are still under construction, such as a construction site, have fallen out of the GST scheme.
Under construction houses, apartments, and commercial property fall under the GST Scheme. And it is important for property buyers to be aware of this when shopping for a property.
On the other hand, construction sites are offered a GST deal as they are a part of the life of a property.
The GST scheme provides relief for shops, small businesses, and construction sites that build or renovate buildings.
So while construction sites could be convenient to purchase a pre-fabricated building, they do have to be aware of how the GST is calculated on their properties before making any deals.
The GST offered by the scheme stands for goods and services to be constructed while within it.
So if property buyers do end up buying a building that was under construction while under the GST scheme then they are entitled to the GST refund.
However, there is a stipulation that must be adhered to. The sales of goods or the services must take place within two years of the building being under construction. An example of this is refurbished kitchens have a GST component.