GST on Property in Australia

When are residential premises “new”?

Under the GST Act, residential premises are new if they:

• Have not previously been sold as residential premises (first sale after construction)
• Were created through substantial renovations (see below)
• Were built to replace demolished premises on the same land

Critically, the premises must be sold by the entity that created them (the developer, builder, or renovator). If a buyer purchases a new home from a developer and later resells it, that resale is not a sale of new residential premises — it is an existing residential premises sale (input taxed, no GST).

The 5-year rule

New residential premises stop being “new” if they have been continuously rented out for at least 5 years since they were first created, last substantially renovated, or built to replace demolished premises. After 5 years of continuous rental, a sale by the original developer/builder becomes input taxed (no GST), the same as any other existing home sale.

This is a deliberate strategy some developers use: build, rent for 5+ years, then sell GST-free. However, they cannot claim input tax credits on construction costs if the property is rented out as residential accommodation (an input-taxed supply) during that period.

5-year rule — examples

What qualifies as a substantial renovation?

The ATO defines substantial renovations as renovations in which all, or substantially all, of a building is removed or replaced. The test is whether the end result is essentially a new building inside the existing structural shell. The renovation does not need to include removal or replacement of:

• Foundations
• External walls
• Interior supporting walls
• Floors
• Roof
• Staircases

But the overall internal fit-out — walls, ceilings, flooring, plumbing, wiring, fixtures — must be comprehensively replaced.

What does not qualify?

Cosmetic renovations, even expensive ones, do not make premises “new” for GST purposes. Replacing a kitchen, adding a bathroom, painting, or re-carpeting are not substantial renovations unless they form part of a broader project that replaces substantially all of the building's internals.

Sales

If you are GST-registered and sell commercial property, you must charge 10% GST on the sale price. The buyer (if also GST-registered) can claim the GST as an input tax credit. The contract should clearly state whether the sale price is GST-inclusive or GST-exclusive plus GST.

Leases

Commercial rent is taxable. Landlords registered for GST charge 10% on rent, and tenants can claim the GST as an input tax credit. Outgoings (council rates, insurance, maintenance) recovered from tenants also attract GST if the landlord is GST-registered.

Commercial residential premises

Hotels, motels, inns, hostels, boarding houses, caravan parks, and camping grounds are classified as commercial residential premises. Short-stay accommodation (guests staying under 28 continuous days) is fully taxable. When a guest stays 28 or more continuous days, concessionary GST treatment applies. If at least 70% of guests stay 28+ days, the entire operation may qualify for the concession.

How it works

The margin is the sale price minus the original purchase price (or a valuation, for properties acquired before 1 July 2000). GST is then 1/11th of this margin.

When can you use it?

You can use the margin scheme when you acquired the property:

• From someone who was not GST-registered (e.g., a private seller)
• As an input-taxed supply (e.g., existing residential premises)
• Under the margin scheme from the previous seller
• As a GST-free going concern
• Before 1 July 2000 (pre-GST)

In all these cases, the common thread is that no GST credit was claimed on the original purchase. If you claimed input tax credits when you bought the property, you cannot use the margin scheme when you sell it.

Written agreement required

Both buyer and seller must agree in writing to use the margin scheme before settlement. This is typically included as a special condition in the contract of sale. Without this written agreement, the margin scheme cannot be used — even if all other conditions are met.

Standard method vs margin scheme — comparison

Example: Property purchased for $500,000 (no GST), sold for $800,000. Using the margin scheme saves $45,454 in GST compared to the standard method.

Two methods for calculating the margin

Impact on the buyer

When property is sold under the margin scheme, the buyer cannot claim an input tax credit for the GST component. The tax invoice must not separately state the GST amount. This is a key trade-off: the seller pays less GST, but the buyer cannot recover any of it.

Requirements — all must be met

Common scenarios

How much is withheld?

The process

1. Supplier notification: The seller provides written notice to the buyer (before settlement) stating whether a withholding obligation exists and the withholding amount.
2. Form 1 — Withholding notification: The buyer (or their conveyancer) lodges this form online or via PEXA before settlement, receiving a unique payment reference number (PRN).
3. Settlement: The buyer pays the withholding amount to the ATO (using the PRN) and the balance to the seller.
4. Form 2 — Settlement confirmation: The buyer lodges this on or before the settlement date to confirm the payment.

When does it apply?

GST withholding applies to sales of new residential premises (including substantially renovated homes and off-the-plan apartments) and potential residential land sold to a buyer who is not GST-registered or not acquiring for a creditable purpose. It does not apply to sales of existing residential premises, commercial property between GST-registered entities, or going concern sales.

When does GST apply to vacant land?

GST applies if the sale is made in the course or furtherance of an enterprise and the seller is (or is required to be) registered for GST. A private individual selling a single block of land they have held as an investment is generally not carrying on an enterprise and does not charge GST.

Subdivisions — when is it an enterprise?

Subdividing land and selling the lots can constitute an enterprise even if it is a one-off activity. The ATO considers factors including:

• Your intention or purpose (profit-making vs personal use)
• The scale of the development (number of lots, level of work involved)
• Whether you engaged contractors, obtained DA approvals, installed infrastructure
• Whether the activity has the characteristics of a business or commercial transaction

If the subdivision activity is an enterprise and your GST turnover exceeds $75,000, you must register for GST and charge it on the lot sales. Even a two-lot subdivision can trigger GST if the ATO views it as a profit-making venture rather than the realisation of a capital asset.

Farmland — the 5-year farming exemption

Farmland sold as a GST-free supply must meet two conditions: a farming business has been carried on the land for at least 5 years preceding the sale, and the buyer intends to continue carrying on a farming business on the land. The 5-year requirement relates to the land itself, not the seller — so land that has been farmed under lease by a tenant for 5+ years also qualifies.

When you can claim credits

• Building to sell: If you construct new residential premises for sale (a taxable supply), you can claim input tax credits on construction costs, architect fees, legal costs, real estate agent commissions, and other development expenses.
• Commercial property: If you buy, build, or lease commercial property for use in your GST-registered business, you can claim credits on purchase price, fit-out costs, maintenance, and agent fees.

When you cannot claim credits

• Residential rental property: Renting out residential property is an input-taxed supply. You cannot claim GST credits on construction costs, maintenance, property management fees, or any expenses related to the rental.
• Margin scheme purchases: When you buy property under the margin scheme, you cannot claim an input tax credit for the GST component because the GST amount is not separately stated on the invoice.

Change of use — GST adjustments

If you change how you use a property, you may need to make GST adjustments. For example, if you build apartments intending to sell them (taxable) and claim input tax credits during construction, but then decide to rent them out (input taxed) instead, you must repay some or all of the credits you claimed. Adjustments work in both directions — if you initially rented (no credits) and later sell as new residential premises (taxable), you may be entitled to claim credits you previously couldn't.