Stage 1 of the Property Development Cycle: ‘Commencement’

Stage 1 of the Property Development Cycle: Commencement

Navigating GST obligations during the early stages of a property development is crucial. Making informed decisions upfront can significantly impact your project’s profitability and compliance. Here’s what you need to know at the commencement stage:

When Should You Register for GST?

An entity is required to register for GST if:

• It is carrying on an enterprise; and
• Its annual GST turnover exceeds or is projected to exceed $75,000 over a rolling 12-month period.

An enterprise is defined as an “activity or series of activities” that involves:

• Conducting business, an adventure, or a concern in the nature of trade; or
• Regularly or continuously leasing, licensing, or granting interests in property.

The concept of “carrying on” includes actions taken during the commencement or termination of an enterprise.

Why Register Early?
Registering for GST at the commencement of your development allows you to claim input tax credits (i.e., GST refunds) on eligible acquisitions, provided:

• They are incurred in the course of carrying on your enterprise; and
• They are not related to making input-taxed supplies, such as residential leasing, or of a private/domestic nature.

When Are You “Carrying on an Enterprise” for GST Purposes?

Case law highlights several factors that determine whether an entity is “carrying on an enterprise”:

• Profit-Making Purpose: Is there a clear intention to generate profits?
• Scale of Activities: How extensive are the development activities?
• Commercial Character: Do the transactions have a commercial nature?
• Systematic Organisation: Are the activities conducted in a structured, business-like manner?

One-Off Property Developments
The requirement to register for GST can be less clear with one-off developments. Factors such as the purchaser’s intention at acquisition and the overall arrangements need careful consideration. Simply selling a capital asset may not constitute an enterprise, but no single factor is determinative.

Indicators of a Development Enterprise

The ATO considers the following indicators as signs of a development enterprise:

• A change in the purpose for holding the land
• Acquisition of additional land to expand the original parcel
• Treating the land as a business asset
• Development beyond securing council approval (e.g., site clearing, building)
• Borrowing funds for subdivision
• Having a coherent subdivision plan
• Establishing a business-like structure (e.g., appointing a manager, using office resources)
• Income tax treatment — capital versus revenue account

Key GST Considerations on Acquisition

A developer’s intended property use typically drives the preferred GST treatment for acquisitions. Early decisions can influence the availability of GST concessions during the eventual sale, such as the margin scheme or GST-free supply of a going concern, both of which require written agreement between buyer and seller.

The table below highlights initial considerations for property acquisition:

Conclusion
GST considerations at the commencement of a property development are crucial to structuring the project efficiently and maintaining compliance. Engaging professional advice early ensures you’re well-positioned to claim entitlements, reduce risks, and maximise project profitability.