Tax is one of the biggest components of our daily life yet is also one of the most commonly misunderstood. Taxation, in general, affects nearly all of our purchasing decisions and is guided by the laws set by the Australian Taxation Office. While many generally think nothing of it, some common misconceptions can become more troublesome because of simple negligence.
Goods and services tax, more commonly referred to as GST, is widely known as the tax on most goods and services in Australia—even housing. Despite this being a daily component for nearly 15 years, many misconceptions about GST on the property market are still plaguing Australia today. A tiny error can become a big legal problem, requiring you to contact a property lawyer for more assistance.
To help you understand more about it, here are four of the most common real estate mistakes regarding GST.
Charging on Pre-Existing Residential Premises
One of the most common mistakes is the charging of GST on already pre-existing residential premises. When selling an already pre-existing residence, then there should be no GST charging as it is now considered as input taxed supplies.
Even if a developer is GST-registered, it still should not apply. This, however, is only for pre-existing structures—land lots, on the other hand, are a separate case entirely.
Automatic GST for Commercially-Used Properties
Another extremely common misconception is the assumption that commercially-used properties garner GST. Even if a particular structure was used commercially, it does not automatically mean that it attracts GST on sale. In general, GST treatment depends on the specifics of the property type registered—just because it was used commercially does not automatically make it so.
In that same regard, GST shouldn’t be charged towards commercial tenants, nor should you be claiming back GST credits for a property that doesn’t properly fit in the regulations.
Forgetting the Margin Scheme
In general, developers sell a property under the margin scheme in order to reduce the likelihood of double taxation and save on GST. If, however, it is not indicated in the contract, then it can become increasingly problematic in the long run.
Resolving a forgotten indication in the contract that it was under the margin scheme entails a long back-and-forth process of clearing the error out. The ATO must be informed of the error and that a post-settlement discussion was made regarding the margin scheme, else, you lose the full 1/11th in GST upon sale.
Developers registering on GST
Prior to taking a development, a precursory step to the process involves checking whether you should be registered to the GST for that particular project. This will avoid a lot of unnecessary property loss by paying for something that you aren’t supposed to be paying for in the first place. If unsure, then a quick consultation with the ATO can be fruitful, allowing you to settle on a more applicable situation for your project.
These mistakes can help avoid a legal property problem and the unnecessary loss of profits in the long run. Despite this, however, any issues and mistakes made can be readily reported to the ATO in order to be rectified.
Need help with GST on your property settlement in Brisbane? If you’re unsure whether you’re following the correct taxation scheme for your property, then consult with a our property lawyer immediately!