Few areas of Australian tax law generate more client confusion than GST on property. The threshold question — does GST apply to this sale? — depends on a web of factors: the type of premises, who's selling, whether it's a new or established property, and whether any concessions or special rules apply. Getting it wrong has real consequences, including ATO assessments, penalties, and in some cases personal liability for directors. Here's a practical breakdown of how the rules work and what to watch for in your clients' transactions.
New Residential Premises vs Established: The Fundamental Divide
The starting point under the GST Act (A New Tax System (Goods and Services Tax) Act 1999) is that the sale of a "new residential premises" is a taxable supply, meaning GST applies at 1/11th of the sale price. The sale of established residential premises is input taxed — GST does not apply, and the vendor cannot claim input tax credits on related costs.
"New residential premises" broadly means premises that have not previously been sold as residential premises, or that have been substantially renovated. The ATO's definition of "substantial renovation" requires that most of the structural components (walls, floors, ceilings, roof, and so on) have been replaced or altered. A cosmetic renovation — new kitchen, fresh paint, replaced flooring — does not make a property new. This is a point many developer clients get wrong, and it's worth pressing them on the extent of works before assuming GST applies.
There is one exception that catches people out: a property can revert to "new" status if it has been used for commercial residential purposes (such as a boarding house) and has not since been used as a private residence. The ATO has a decision tool on its website for this, but for any complex case, you should be directing clients to a specialist property tax adviser.
The Margin Scheme: Reducing the GST Liability
Eligible developers can choose to apply the margin scheme, which calculates GST on the margin between the sale price and the acquisition price, rather than on the full sale price. For properties acquired before GST was introduced (1 July 2000), a valuation at that date substitutes for the acquisition cost.
The margin scheme is only available if the vendor acquired the property under a margin scheme sale or under certain other eligible acquisitions. Critically, the parties must agree in writing to apply the margin scheme before settlement — it cannot be applied retrospectively. This is a contractual and timing issue your clients' solicitors should be across, but bookkeepers who are processing settlements after the fact sometimes discover that no agreement was made. In that situation, GST applies to the full sale price, not the margin, and the loss can be substantial.
From a bookkeeping perspective, margin scheme sales require careful documentation: you need the original acquisition price (or valuation), sale price, and the calculation of the margin. The GST component of the margin goes to 1A on the BAS, but because the calculation method differs from a standard taxable supply, make sure your BAS worksheet reflects the margin scheme figure rather than 1/11th of gross proceeds.
Going Concern Exemption: When the Sale Is of a Business
Where a property is sold as part of a going concern — meaning the vendor is supplying an enterprise that is capable of continued operation — the transaction can be GST-free under section 38-325 of the GST Act. Both parties must be registered for GST, and the agreement must include a written statement that the supply is of a going concern.
This most commonly arises where a client is selling a residential property that has been used as a managed letting business (such as a serviced apartment operation). The requirements are strictly interpreted by the ATO, and the going concern exemption is regularly tested in the Administrative Appeals Tribunal. If your client is relying on this exemption to avoid GST on a significant transaction, independent legal and tax advice is not optional.
Developer Obligations and Withholding at Settlement
Since 1 July 2018, purchasers of new residential premises (and potential residential land) are required to withhold GST from the contract price and remit it directly to the ATO at settlement, rather than paying the full amount to the vendor. The withholding amount is generally 1/11th of the contract price, or 7% if the margin scheme applies.
This means vendors receive a reduced payment at settlement and must then lodge a GST property settlement date confirmation with the ATO to claim credit for the withheld amount. Developers who are not across this regime often contact their bookkeeper after settlement confused about the shortfall. The ATO's online forms (Forms GST DWS01 and GST DWS02) handle the notification and credit claim — make sure your developer clients have their AUSkey or myGovID access in order well before settlement day.
For your BAS, the withholding amount your client receives credit for is not a separate line — it flows through as a reduction in net GST payable on the activity statement for the period that includes settlement.
Practical Checklist Before a Property Transaction
Before a client settles on the sale or purchase of residential property, run through these questions:
- Is the property new residential premises, substantially renovated, or established?
- Is the vendor registered (or required to be registered) for GST?
- Is the margin scheme available and has it been agreed in writing?
- Does the going concern exemption apply, and have all conditions been met?
- Is the withholding regime triggered? Has the vendor notified the ATO?
- How will the GST (or GST-free) treatment flow through to the BAS?
Property transactions are high-value, infrequent, and easy to get wrong. A 30-minute review at contract stage is vastly cheaper than an amended BAS, a penalty, or an ATO audit.