au-gst-property

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# Australia GST and Real Property Skill

## Australia GST and Real Property Skill v1.0

> **General reference only.** This skill is general tax/accounting reference material for AI-assisted workflows. It has not been reviewed for any specific person's facts, documents, elections, deadlines, residency, or contracts. Do not rely on it to file, pay, settle, or take a tax position without review by a qualified professional.

> **Relationship to the base GST skill.** General BAS mechanics (labels, tax invoices, Simpler BAS, reverse charge, food/health classifications) live in `australia-gst`. That skill's refusal lines R-AU-3 (margin scheme) and R-AU-4 (going concern) route here: this skill supplies the specialist property layer -- classification, withholding, margin, going concern, and adjustment computations -- with its own, narrower refusal catalogue (Section 8). Escalation still ends with a registered tax agent.

## Section 1 -- Quick reference

**Read this whole section before classifying any property transaction.**

**Quick reference fields**

| Field | Value |
| --- | --- |
| Country | Australia |
| Primary legislation | GST Act 1999: Divs 38, 40, 75, 129, 135; TAA 1953 Sch 1: ss 14-250, 14-255, 18-60 |
| GST rate | 10% (GST = 1/11th of a GST-inclusive price) |
| Registration threshold | $75,000 GST turnover ($150,000 non-profit); mere disposals of capital assets excluded from projected turnover (s 188-25) |
| GST at settlement (RW) | From 1 July 2018: purchaser withholds on new residential premises and potential residential land -- 1/11th of contract price; 7% if margin scheme; 10% of GST-exclusive market value for below-market supplies between associates |
| RW forms | Form one: *GST property settlement withholding notification* (issues PRN + LRN); Form two: *GST property settlement date confirmation* |
| Supplier RW credit | Withheld amount lands in the supplier's *GST property credits* account; transfers to the activity statement account on lodgment (s 18-60 Sch 1 TAA) |
| New residential premises | s 40-75(1): not previously sold as residential premises / no previous long-term lease (50+ years); or created by substantial renovations; or built to replace demolished premises |
| 5-year rule | s 40-75(2): premises stop being "new" after at least 5 years used ONLY for input-taxed residential rent (para 40-35(1)(a)) |
| Margin scheme agreement | In writing, on or before making the supply (settlement) -- s 75-5(1A); Commissioner may allow further period (PS LA 2005/16) |
| Div 129 adjustment periods | Non-business-finance acquisitions: 2 (<= $5,000), 5 (> $5,000 and < $500,000), 10 (>= $500,000) -- s 129-20(3) |
| Div 135 clawback | Increasing adjustment = 1/10 x supply price x proportion of non-creditable use (s 135-5) |
| Penalty unit | $364 (from 1 July 2026) |
| FRCGW (separate regime) | Foreign resident capital gains withholding: 15%, NO price threshold, from 1 January 2025. Income tax withholding, not GST -- different forms; both can apply to one settlement |
| Contributor | Open Accountants |
| Validated by | Pending |

**Conservative defaults**

| Ambiguity | Default |
| --- | --- |
| Residential premises: new or existing? | Existing (input taxed) for ITC purposes; but flag RW screening as if new until contract sighted |
| Whether the 5-year rule is satisfied | NOT satisfied -- "only used" for renting is strict; any marketing-for-sale period breaks it |
| Margin scheme agreement status | No valid written agreement until the signed contract clause is sighted |
| Going concern conditions | NOT met until written agreement, both registrations, and carry-on-to-settlement are all evidenced |
| Purchaser's intended use after a going concern purchase | Input-taxed use possible -- quantify the Div 135 exposure at full supply price |
| Developer's unsold stock being rented | Div 129 increasing adjustment applies; 10 adjustment periods (assume >= $500,000) |
| One-off subdivision | Enterprise question OPEN -- work the MT 2006/1 factors; never assume mere realisation |
| Vendor GST registration status | Check ABN Lookup; do not accept the contract's assertion alone |

## Section 2 -- Classifying supplies of real property

**Classification of supplies of real property**

| Supply | Treatment | Source |
| --- | --- | --- |
| Sale of NEW residential premises | Taxable (RW applies) | s 40-75; s 40-65(2)(b) |
| Sale of existing residential premises | Input taxed | s 40-65 |
| Residential rent (long-term) | Input taxed | s 40-35(1)(a) |
| Commercial premises -- sale or lease (office, retail, industrial) | Taxable | s 9-5 (no exemption) |
| Vacant land sold in the course of an enterprise | Taxable (not residential premises -- no shelter: GSTR 2012/5); RW applies if potential residential land | s 9-5; s 14-250 |
| Commercial residential premises (hotels, motels, boarding houses, caravan parks) | Taxable -- but classification is contested territory; refuse R-AU-GP-4 | s 87; GSTR 2012/6 |
| Farmland with continuing farming business | GST-free (conditions) | Subdiv 38-O |
| Sale of a leased building as a going concern | GST-free (conditions -- Section 5) | s 38-325 |

### 2.1 New residential premises (s 40-75)

- **New residential premises limbs** — Residential premises are **new** if any limb applies, subject to limb (a) overriding (b) and (c): - **(a)** not previously sold as residential premises (other than commercial residential) and never subject to a long-term lease (50+ years); or - **(b)** created through **substantial renovations** of a building -- renovations affecting the building as a whole in which all or substantially all of the building is removed or replaced (need not be structural: GSTR 2003/3 paras 53-83); cosmetic refresh (paint, carpet, kitchen swap) is NOT enough; or - **(c)** built to replace demolished premises on the same land. Subdividing or strata-titling existing (not-new) residential premises does **not** create new premises (s 40-75(2AA)). Intra-GST-group sales and certain associate "wholesale supply" arrangements are disregarded for the "previously sold" test (ss 40-75(2A), (2B)) -- grouping does not launder newness away; flag any group or development-agreement structure (R-AU-GP-3, R-AU-GP-6).  _(s 40-75; GSTR 2003/3 paras 53-83; ss 40-75(2AA), (2A), (2B))_
- **AUDIT FLASH POINT -- the 5-year rule** — **AUDIT FLASH POINT -- the 5-year rule (s 40-75(2)).** Premises cease to be new if, for a continuous period of at least 5 years since they first became residential premises / were last substantially renovated / were last built, they have **only** been used for making input-taxed supplies under para 40-35(1)(a) (residential rent). "Only" is strict: a developer who rents an apartment while simultaneously marketing it for sale is applying it to a dual purpose, so the 5-year clock never runs (ATO view in GSTR 2003/3 and GSTR 2009/4). Five years of rental with the property listed for sale in year 2 does NOT convert the premises. Conversion changes everything downstream: the eventual sale becomes input taxed, ITCs claw back through Div 129, and no RW applies.  _(s 40-75(2); para 40-35(1)(a); GSTR 2003/3; GSTR 2009/4)_

### 2.2 Input-taxed consequences and mixed developments

- **Input-taxed consequences and mixed developments** — Input-taxed supplies (existing residential sales, residential rent) carry **no GST and no input tax credits** on related acquisitions (s 11-15(2)(a)). Consequences: - A landlord of residential premises claims nothing on agent fees, repairs, or the purchase itself -- even though those suppliers charge GST. - A developer intending both taxable sales and input-taxed letting must **apportion** every acquisition (construction, professional fees, marketing) to its extent of creditable purpose using a fair and reasonable method (GSTR 2006/4); a mixed tower (shops below, long-term apartments above) apportions by floor area, cost or expected revenue. - Apportionment percentages set at acquisition are provisional -- Div 129 (Section 6) trues them up against actual use.  _(s 11-15(2)(a); GSTR 2006/4)_

## Section 3 -- GST at settlement (residential withholding, from 1 July 2018)

- **RW overview and scope** — RW re-plumbs **payment**, not liability: the purchaser pays part of the price to the ATO, and the supplier's BAS still self-assesses the actual GST. Statute: s 14-250 Sch 1 TAA (withholding), s 14-255 (supplier notification), s 18-60 (supplier credit); LCR 2018/4. **Scope.** Withholding applies to taxable supplies, by way of sale or long-term lease, of: - **new residential premises** (except those created by substantial renovations, and except commercial residential premises); and - **potential residential land** (zoned to permit residential use, no building that is residential premises -- e.g. a subdivision lot), unless the purchaser is GST-registered and acquires for a creditable purpose. **Excluded:** substantial-renovation premises, commercial residential, commercial property, premises no longer new (previously sold, or 5-year rule satisfied), potential residential land with a building in commercial use, and non-taxable sales (the family home, mere realisations). **Amounts** (rounded down to the whole dollar): 1/11th of the contract price (adjusted for pre-settlement rebates); **7%** of the contract price where the margin scheme applies; 10% of the GST-exclusive market value for below-market supplies between associates. **Process (both forms are the purchaser's obligation, usually run by their conveyancer under a signed authority):**  _(s 14-250, s 14-255, s 18-60 Sch 1 TAA; LCR 2018/4)_

**RW process steps**

| Step | Who | What |
| --- | --- | --- |
| 1 | Supplier | Written **supplier notification** before settlement -- required for any sale of residential premises or potential residential land, even to say "no withholding required". If withholding applies, must state: names + ABNs of all suppliers, GST branch number (if any), the amount, when payable, and the GST-inclusive contract price. Standard land contracts in every state (not NT) embed it |
| 2 | Purchaser | Lodge **Form one** online any time after exchange, up to the payment due date -- returns a **PRN** (payment reference) and **LRN** (lodgment reference) |
| 3 | Purchaser | Lodge **Form two** within 2 business days before settlement, on the day, or the next business day after (instalment contracts: keyed to the first payment other than the deposit) |
| 4 | Purchaser | Pay the withheld amount at settlement quoting the PRN (or hand the supplier's bank cheque process per the ATO supplier guide) |
| 5 | ATO | Credits the amount to the supplier's **GST property credits** account; email confirmation to the supplier |
| 6 | Supplier | BAS for the settlement period: full sale price at **G1**, actual GST at **1A**. Do NOT net off the withheld amount at 1A. On lodgment the property credit transfers to the activity statement account (allow up to 2 business days) |

- **Penalties and FRCGW contrast** — **Penalties.** Supplier's failure to give the notification: strict liability offence, up to 100 penalty units ($36,400 at $364/unit from 1 July 2026; x5 for bodies corporate). Purchaser's failure to withhold: administrative penalty equal to the amount not withheld -- but no penalty where the purchaser reasonably relied on the supplier's notification (unreasonable where the purchaser knows the vendor is registered and the premises are plainly new). **FRCGW is a different regime.** Foreign resident capital gains withholding (15%, no threshold, all real property, from 1 January 2025) is income tax withholding with its own forms and clearance certificates. A new-apartment sale by a foreign developer can trigger BOTH. Cross-lodging the wrong regime's forms strands the credit -- the ATO will not allocate a GST property credit until the correct GST forms are lodged.  _(penalty unit $364 from 1 July 2026; FRCGW 15% from 1 January 2025)_

## Section 4 -- The margin scheme (Division 75)

- **Margin scheme rules** — GST on an eligible taxable sale of real property may be worked out as **1/11th of the margin** instead of 1/11th of the full price. - **Written agreement.** Supplier and recipient must agree in writing that the margin scheme applies, **on or before the making of the supply** -- settlement, not exchange (s 75-5(1), (1A)). The Commissioner can allow a later agreement (reviewable decision; PS LA 2005/16) but never plan on it. The clause lives in the contract: sight it, never draft it (R-AU-GP-1). - **Eligibility.** Not available if the supplier acquired the entire interest through a supply that was *ineligible for the margin scheme* -- centrally, a fully taxable supply on which GST was worked out **without** the margin scheme (s 75-5(2), (3)). Eligible acquisition histories include: purchases from unregistered vendors, input-taxed purchases (existing residential), pre-1 July 2000 holdings, GST-free going concern or farmland acquisitions (special margin rules in s 75-11 apply -- often the vendor's acquisition cost carries through), and purchases that themselves used the margin scheme. - **Margin** = consideration for the sale minus consideration for the acquisition (s 75-10(2)). Development, construction, and holding costs do NOT increase the acquisition consideration -- they are recovered only through ordinary ITCs. - **Pre-1 July 2000 holdings:** the margin may instead be sale price minus an **approved valuation** of the property, generally as at 1 July 2000 (day of registration if registered later) -- s 75-10(3). An approved valuation must meet MSV 2020/1 (professional valuer, signed certificate, made by the required date). Valuations are refusal territory: R-AU-GP-2. - **The purchaser gets NO input tax credit** on a margin scheme acquisition (s 75-20), and no tax invoice showing GST exists. Price the deal accordingly. - **Flow-on:** because the purchaser's acquisition was not a fully-taxable-without-margin supply, the purchaser can itself use the margin scheme on a later taxable resale (fresh written agreement required). A full-GST purchase permanently kills margin eligibility for that interest. - **RW interaction:** withholding on a margin scheme sale is 7% of the contract price, credited against the actual margin GST in the supplier's BAS -- over-withholding refunds through the BAS (Example 2).  _(Div 75: ss 75-5, 75-10, 75-11, 75-20; MSV 2020/1; PS LA 2005/16)_

## Section 5 -- Going concern (s 38-325) and the Division 135 clawback

- **Going concern conditions** — A supply of a going concern is **GST-free** if ALL of: 1. the supply is for consideration; 2. the **recipient is registered** or required to be registered; 3. supplier and recipient have **agreed in writing** that the supply is of a going concern (on or before the day of supply); 4. the supplier supplies **all of the things necessary** for the continued operation of the enterprise; and 5. the supplier **carries on the enterprise until the day of the supply** (settlement). GSTR 2002/5 is the operative ruling. The classic property case: sale of a **leased commercial building** -- the enterprise is leasing; "all things necessary" = the building plus the benefit of the existing lease(s). A building with the tenant already departed and no new lease in place generally fails; partially vacant buildings with active marketing of the vacancies can pass (GSTR 2002/5 paras 150-151). Benefits: no GST cash flow, and stamp duty bases in some states exclude GST. Risks: mis-classification means 1/11th of the whole price is owed with penalties -- verification is escalation territory (base skill R-AU-4).  _(s 38-325; GSTR 2002/5 paras 150-151)_
- **Division 135 clawback increasing adjustment** — **Division 135 clawback.** The GST-free treatment assumes the purchaser keeps making taxable/GST-free supplies. If the recipient of a going concern (or GST-free farmland) intends that some or all supplies through the enterprise will be **neither taxable nor GST-free** (input taxed -- residential rent is the classic), s 135-5 imposes an immediate **increasing adjustment**: ``` Increasing adjustment = 1/10 x supply price x proportion of non-creditable use ``` -- attributable to the purchaser's tax period of the acquisition. Later changes in actual use adjust again under s 135-10 via Div 129. A purchaser buying a tenanted office block GST-free and converting it to long-term apartments pays 1/10th of the full price to the ATO with no offsetting credit (Example 3). ALWAYS screen the purchaser's intended use before anyone signs a going concern clause.  _(s 135-5; s 135-10; Div 129)_

## Section 6 -- Developers who rent unsold stock: apportionment and Division 129

- **Build-to-sell-then-rent trap and Div 129 mechanics** — The **build-to-sell-then-rent trap**: a developer claims full ITCs during construction (intended 100% taxable sales), then the market softens and unsold apartments are rented out. Renting is input taxed, so the extent of creditable purpose has changed -- Div 129 requires **increasing adjustments**. - **Adjustment periods (s 129-20):** the first is the tax period ending on or nearest 30 June starting at least 12 months after the acquisition's tax period; thereafter annually. Number of periods for non-business-finance acquisitions: **2** where the GST-exclusive value is $5,000 or less; **5** where more than $5,000 but under $500,000; **10** where $500,000 or more. Apartment-scale construction acquisitions are almost always in the 10-period band -- a decade of annual true-ups. - **Mechanic:** at each adjustment period, compare the ITC actually claimed (intended application) with the ITC that reflects **actual application** to date. Actual application below intended -> increasing adjustment (label 1A side); a later taxable sale within the adjustment periods lifts actual application and can produce decreasing adjustments. - **Dual concurrent use:** while a rented apartment is still genuinely held for sale, the application is split between taxable-sale purpose and input-taxed renting. GSTR 2009/4 accepts fair and reasonable methods (e.g. expected sale proceeds vs total expected consideration, or time-based weighting). Method choice is judgement-heavy -- compute a sketch, flag the method, and escalate sign-off. - **Interaction with the 5-year rule:** if the developer stops marketing and rents solely, the 5-year clock starts; once premises stop being new, the eventual sale is input taxed and adjustments trend the credits toward nil. Selling while still new keeps the sale taxable (and RW applies).  _(s 129-20; GSTR 2009/4)_
- **AUDIT FLASH POINT -- enterprise vs mere realisation** — **AUDIT FLASH POINT -- enterprise vs mere realisation (MT 2006/1).** One-off subdivisions are the other side of this coin: an "enterprise" includes an isolated venture in the form of an adventure in the nature of trade (s 9-20), but the **mere realisation** of a capital asset -- even enhanced by subdivision -- is not one. MT 2006/1 paras 262-302 factors pointing TO an enterprise: change of purpose for which the land is held; additional land acquired; land brought to account as a business asset; a coherent plan for subdivision; a business organisation (manager, office, borrowings); interest on borrowed development funds claimed; development beyond what council approval minimally requires; buildings erected. The retiree subdividing the family block into three lots with minimum-compliance works and no borrowings is ordinarily realising a capital asset: no enterprise, no registration, no GST, no RW -- and s 188-25 excludes capital asset disposals from projected GST turnover, so the $75,000 threshold is not tripped by the sale itself. But add borrowings, staged construction, and a sales office, and the same block becomes an enterprise making taxable supplies of potential residential land -- with an isolated-transaction registration obligation the client never saw coming. Work the factors in writing every time; never assume either way.  _(MT 2006/1 paras 262-302; s 9-20; s 188-25)_

## Section 7 -- Worked examples

### Example 1 -- New residential sale with RW and the BAS credit

DevCo (registered, quarterly) sells a newly built townhouse for $880,000, margin scheme not applied. Contract notification: withholding $80,000 (1/11th). Purchaser pays a $88,000 deposit; her conveyancer lodges Form one (gets PRN/LRN), lodges Form two two days before settlement, and at settlement pays the ATO $80,000 and DevCo the balance:

```
$880,000 - $88,000 deposit - $80,000 RW = $712,000 to DevCo at settlement
```

DevCo's BAS for the settlement quarter: G1 $880,000; 1A $80,000. The $80,000 sits in DevCo's GST property credits account and transfers on lodgment -- net GST cash on the sale: nil. DevCo must NOT report only the net price or skip 1A "because the purchaser already paid it".

### Example 2 -- Margin scheme with a 1 July 2000 valuation

HoldCo, registered since 1998, has owned a vacant residentially-zoned lot since 1995. In 2026-27 it sells the lot for $1,650,000 to an unregistered individual; the contract contains a margin scheme agreement. An approved valuation (MSV 2020/1-compliant, signed certificate) fixes the 1 July 2000 value at $400,000.

```
Margin = $1,650,000 - $400,000            = $1,250,000

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