Stage 3 of the Property Development Cycle: Disposal or Leasing
The final stage of the property development cycle involves either selling or leasing the developed property. This stage presents numerous GST complexities, as the treatment largely depends on the type of property, the nature of the transaction, and agreements between the parties involved.
Potential GST Treatments by Property Type
|
PROPERTY TYPE |
SUPPLY TYPE |
POTENTIAL GST TREATMENT |
|
COMMERCIAL PREMISES |
Sale |
Taxable or GST-free (supply of a going concern) |
|
Lease |
Taxable |
|
|
RESIDENTIAL PREMISES |
Sale (new) |
Taxable or margin scheme (if eligible) |
|
Sale (existing) |
Input taxed or outside the scope |
|
|
Lease |
Input taxed |
|
|
COMMERCIAL RESIDENTIAL |
Sale |
Taxable, GST-free, or input taxed |
|
Lease |
Taxable, concessional taxed (5.5%), or input taxed |
|
|
VACANT LAND |
Sale/Lease |
Taxable or GST-free |
Note: These treatments assume that the supplier is registered for GST.
Key Definitions for GST Classification
Residential Premises
These are defined as land or a building that:
- Is occupied or intended to be occupied as a residence or for residential accommodation
- Provides basic living facilities and shelter
- Must be fit for human habitation
The ATO considers the physical characteristics of the property to determine whether it qualifies as a residential premise.
New Residential Premises
Premises are considered “new” if they:
- Have not previously been sold as residential premises
- Are created through substantial renovations
- Replace demolished premises
Substantial Renovations
This refers to renovations where all, or substantially all, of a building is removed or replaced. The work need not involve structural elements like foundations or walls but must significantly change the overall appearance or function.
Commercial Residential Premises
These include:
- Hotels, motels, and inns
- Hostels and boarding houses
- Caravan parks or camping grounds
- Marinas with berths for ships used as residences
Key Contractual Considerations on Sale
|
Supplier/Vendor |
Recipient/Purchaser |
|
Liability to pay GST and recover costs |
Obligation to pay additional GST consideration |
|
Entitlement to input tax credits |
Entitlement to GST credits for acquisition & |
|
GST withholding obligations |
|
|
Eligibility for margin scheme |
|
|
GST adjustments upon errors or overpayments |
|
|
Potential increasing or decreasing adjustments |
|
|
Liability for penalties and interest |
|
|
Stamp duty implications |
|
Additional Leasing Considerations
Leasing transactions also require careful GST considerations, particularly when lease incentives or premiums are involved.
Types of Lease Incentives and Premiums
- Monetary Inducements:
- Contributions toward tenant fit-out costs
- Payments for relocation expenses
- Rent reimbursements or discounts
- Non-Monetary Inducements:
- Building works to customise premises for the tenant
- Rent-free periods or discounted rent
- Income guarantees
Understanding the GST treatment of these incentives is essential for both landlords and tenants to manage compliance and avoid unexpected liabilities.
Final Thoughts
GST on property disposal and leasing is highly complex and context dependent. Proper structuring and contractual clarity are essential to manage tax obligations and optimise outcomes. Seeking expert advice during this phase can help mitigate risks and enhance profitability.
