GST – Investment Property Transfer/Sale

Question

I have a few questions about GST on investment property transfer as below:

1. My individual client bought a brand-new house from the developer. She then leases it back to them (for them to use as a display unit) for two years. After that she plans to sell the house immediately. Will there be GST on the sale price?

• My corporate client enters a contract to build 4 houses for their client. The total value of the building contract will be $950,000. On completion, their client will transfer 2 houses back to them as the payment for the contract. My client will then sell these 2 houses to the public at an estimated price of $810,000 each. What are the taxes on the sale? Is there GST on the sale? If there is GST, what does my client need to do so GST does not apply to the sale?

Answer

1. The key issue you need to determine was whether there was a genuine change of title and your client paid GST on the purchase – if she did then a second-hand property is being disposed of and there will be no GST. If not, then it is very likely that GST will need to be charged. It sounds like the developer and your client may be associated in some way. GST needs to be paid once on the sale of the property at market value. If your client purchased the property at a significant discount to market value two years ago, then there is a real problem.

• Refer to my earlier comments – again there is no way to avoid the fact that GST must be paid on the market value on the sale of the properties. The building contract is $475k for each property and GST is included in this amount.

For your client to own the property again there must be genuine change in title with stamp duty paid. Having effectively paid $475k… it now transpires the properties are worth $810k each – it goes back to our earlier comments that GST must be collected on the market value of the property.  If the ATO uncovers a scheme to avoid GST they will take a dim view of this, particularly where the parties are closely associated.