How to Avoid GST on Property Sale: Expert Tips

Welcome to our blog post on how to avoid GST on property sale. As a savvy real estate investor, you may be aware that GST can be a costly factor when it comes to buying and selling a property. However, there are ways to avoid it and save money in the process.

In this blog post, our team of experts will provide valuable advice and tips to help you minimise the GST you have to pay when buying or selling a property. We'll also discuss the legal implications of GST and how it can affect your financial situation. So keep reading for all the latest information on how to avoid GST on property sale.

Understand Your GST Obligations

It's important to understand your GST obligations when selling property in Australia. While GST may not apply to the sale of residential property, it may be applicable to the sale of commercial or investment property.

Before making any decisions, it is important to seek professional advice from a qualified accountant or tax advisor. This will help you to understand your GST obligations and to ensure that you are complying with the relevant laws.

The Australian Taxation Office (ATO) outlines a number of factors to consider when determining if GST applies to the sale of property. These include the type of property being sold, the use of the property, the length of ownership, and the purpose of the sale.

If you are selling property with the intention of making a profit, then GST may be applicable. As such, it is important to factor in the cost of GST into your sale price.

If you are selling residential property, then GST generally does not apply. However, if you are selling a property with a GST-registered tenant, then you may need to pay GST on the rental income received.

It is also important to consider any GST implications when entering into an agreement for sale. If you are entering into an agreement for sale with a GST-registered entity, then GST may be payable on the purchase price.

Finally, it is important to keep detailed records of any GST-related transactions. This will help you to comply with the relevant laws and to ensure that you are correctly reporting and paying any GST due.

Determine Your Property Class Type

When it comes to avoiding GST on the sale of a property, the first thing you need to do is determine the class type of the property. This will help you to determine which GST rules apply and if you need to pay GST or not.

The Australian Taxation Office (ATO) classifies properties into two categories: residential and commercial. Residential properties are used mainly for living, such as a house, apartment, or villa. Commercial properties are used mainly for business purposes, such as offices, warehouses, or shops.

When determining the property class type, you should consider the current use and intended use of the property. If the property is currently used for living, but the intention is to use it for business purposes, then the ATO may classify it as a commercial property.

It is also important to consider whether the property is part of a GST registered business or not. If the property is held by a GST registered business, then GST may need to be paid on the sale of the property.

Finally, it is important to consider the ownership structure of the property. Some properties, such as those owned by a family trust, may be exempt from GST. It is important to consult with a qualified accountant to determine whether or not GST is applicable.

Understanding the property class type is essential for determining whether GST needs to be paid or not. It is important to consider the current use and intended use of the property, whether it is held by a GST registered business, and the ownership structure of the property. Consulting with a qualified accountant will help to ensure that the correct GST rules are applied to the sale of the property.

Consider Obtaining a GST Clearance Certificate

Obtaining a GST clearance certificate is one way to avoid GST when selling a property in Australia. It is important to note that while GST is not applicable on residential property sale, it is applicable on commercial property sales.

When selling a commercial property, the seller must obtain a GST clearance certificate from the Australian Taxation Office. This certificate proves that GST has been paid on the sale and allows the buyer to deduct the GST from the purchase price.

In order to obtain the GST clearance certificate, the seller must provide documentation to the ATO that proves they have paid all GST due on the sale of the property. This includes copies of all invoices, receipts, and other financial records related to the transaction. The certificate will also need to be provided to the buyer as evidence of the GST paid.

It is important to note that obtaining a GST clearance certificate is the seller's responsibility and the buyer cannot deduct GST from the purchase price unless the seller has provided the certificate.

When considering obtaining a GST clearance certificate, it is important to remember that the ATO can take up to 28 days to process the certificate. Therefore, it is important to plan ahead and allow ample time for the ATO to process the certificate before the sale.

It is also important to contact a tax professional for advice on how to obtain the GST clearance certificate as the process can be complex and mistakes can be costly.

Utilise the Margin Scheme to Minimise GST

When it comes to avoiding GST on property sale, one of the most effective ways to minimise your GST liability is to utilise the margin scheme.

The margin scheme is a special GST accounting method that applies to properties that have been resold within the past 12 months. This method allows you to only pay GST on the difference between your purchase price and the sale price, rather than the full sale price.

For example, if you purchased a property for $500,000 and then sold it six months later for $550,000, you would only be liable to pay GST on the additional $50,000. Without the margin scheme, you would be liable to pay GST on the full $550,000 sale price.

While the margin scheme does offer considerable savings on GST, it is important to be aware of any restrictions that may apply. For example, the margin scheme is not available for certain types of properties, such as those that are used for residential rental purposes. Additionally, you need to ensure that you keep appropriate records of your purchase and sale prices in order to be able to prove your eligibility for the scheme.

Finally, it is important to note that the margin scheme can have implications for your capital gains tax liability. When utilising the margin scheme, you will need to declare the sale as a ‘taxable’ transaction for capital gains tax purposes, meaning that you may be liable to pay a portion of your profit as capital gains tax. As such, it is important to seek appropriate advice from a qualified financial advisor or accountant to ensure that you are aware of any taxation implications of using the margin scheme.

Overall, the margin scheme can be an effective way of minimising your GST liability when it comes to property sale. However, it is important to consider the potential restrictions and taxation implications of using the scheme in order to ensure that you are making the most of it and getting the best possible outcome for your situation.

We want to help you!

At Ello Lending, we understand the complexities of GST and real estate transactions. Our team of experts are here to help guide you through the process. If you have any questions or want to discuss how to avoid GST on your property sale, please don't hesitate to contact us. We would love to assist you in getting the best deal possible and ensuring that your GST obligations are met.