Property
New residential premises
New residential premises are newly built, substantially renovated or replacement homes, and their first sale is generally subject to GST, unlike the sale of established homes which is input-taxed.
New residential premises is a defined term that picks out homes which are newly built, which have been substantially renovated, or which have been built to replace demolished premises on the same land. The sale of new residential premises by a registered seller is a taxable supply, so GST is included in the price. This contrasts with the sale of established homes, which is input-taxed.
The main purpose of the category is to tax the creation of new housing as part of the ordinary GST system. A builder or developer who sells a new home charges GST and claims credits on the costs of construction, such as materials and subcontractors. If new homes were input-taxed, the builder would not be able to claim those credits, and the tax cost would be built into the price.
Whether a home is still new can depend on its history. Once a new home has been sold, and later sold again, the later sale is of established premises. In some cases premises cease to be new after a period of being rented out, generally five years, even if they have not been sold. A substantially renovated home generally means one where most of the building has been removed or replaced, and cosmetic renovations do not make a home new.
Buyers of new residential premises should know that the price includes GST. If the buyer is an ordinary home buyer, GST is simply a cost. If the buyer is a business buying for taxable use, they may be able to claim a credit, but if they will rent the home out as residential premises, it is input-taxed, so no credit is available. Contracts for new homes often state the price as GST-inclusive, and it is worth checking the wording.
At settlement, there is a withholding process. A buyer of new residential premises, or potential residential land, from a registered seller must generally withhold GST from the price and pay it to the ATO, rather than paying all of the price to the seller. The seller must notify the buyer, and the conveyancer usually manages the payments. The process makes sure the GST reaches the ATO even if the developer does not pay.
The margin scheme can sometimes be used for the sale of new residential premises when the seller acquired the land in a suitable way, which reduces the GST. Not every developer can use it, and the buyer cannot claim credits on a margin scheme purchase. Whether it applies depends on how the land was bought, so the details need to be checked.
Common mistakes include assuming that an older house after cosmetic work is new, or forgetting that GST is included in a developer's price. This is general information only, so check specific cases with the ATO or a registered tax professional.
Worked example
A registered builder completes a new townhouse and sells it for $770,000 including GST. The GST in the price is $770,000 divided by 11, which is $70,000, which the builder reports on the BAS. The builder claims credits on construction costs, for example $22,000 of GST on materials and subcontractors. The net GST payable on this sale is $70,000 minus $22,000, which is $48,000.
Practical tips
- Check whether a home is new or established, since this decides whether GST is in the price.
- Buyers should confirm the contract states whether the price includes GST.
- Expect the settlement withholding process and ask your conveyancer to handle it.