GST for those in the business of renovating to sell houses
A client was wondering how to treat the GST, on a typical example –
- Buys a house from a person not registered for GST for $300,000
- Does the renovations at the cost of $55,000
- Claims the $5,000 GST, then sells the property for $410,000
Question – Is GST Payable on the full selling price? Or, is there some kind of allowance for the fact the original purchase price was GST Free?
Issues to consider –
1 As a general rule residential homes are (GST Free), even if the sale is made in the ordinary course of business. Only exception is for commercial residential premises (hotel, motel, bed & breakfast, hostels) or a new residential homes.
2 For an existing home to be treated as a new residential home it must have substantial renovations – the ATO provides detail guidance on what it considers substantial renovations at GSTR 2003/3
3 If substantially renovated then the house will be treated as a new residential premises and GST will apply on the full sale price, unless the margin scheme is applied to reduce the GST (margin being $410,000-300,000 = $110,000/11 =$10,000).
4 If not substantially renovated the house is (GST Free) and the business would not be able to claim and GST on the renovations or charge GST on the Sale.
Umbrella Accountants - Property Accountants Brisbane