The master of questions – Ken Raiss from Chan & Naylor answers a two part question from Daryl about vacant land, GST and subdivision.
Kevin: Joining us once again to answer your questions, Ken Raiss from Chan & Naylor.
Good day, Ken. How are you doing?
Ken: I’m well, thanks, Kevin. And yourself?
Kevin: Mate, I’m fantastic, thank you. Always good to hear from you. And these are always questions that I can’t answer, Ken. That’s why we come to you because you’re our expert on these ones.
Keep the questions coming in, too, for any of our experts. We’d love to answer your questions. Just do them through the website. Ask a question. Tell us what that question is and we’ll get an answer for you.
This one comes from Daryl. It’s in two parts. I’ll read it in two parts, Ken. The first one – and Daryl does point out that he’s not referring here to a principal place of residence – the first part of the question is “Is GST payable if you are buying a block of land that already has two lots on one title? Split the block and sell them individually? If you’re not registered for GST and bought under personal names or trust structure, I know that tax will be payable, either GST or income tax, but I’m not sure if GST is payable because the lots already exist.”
So here we have a situation, Ken, I guess, one title but two lots. I would have thought two lots would require two different titles.
Ken: It depends what they’re doing. You can actually have the ability to have two lots on one title, and then you just complete the subdivision, of course. Unless, of course, sometimes you can have two buildings and have dual occupancy, and then you have the one title.
GST is a funny creature because it depends on two things: your intent and also the transaction itself. Let’s have a look at intent to start off with. But before I talk about intent, I’ll just preface by the fact that GST is not normally payable on residential property – unless it is new.
So if you buy a property with the intention to build, subdivide, and then sell or any of that, then you’re effectively in business and you would have normally had to register for GST, and then there’s a GST implication.
If, however, you are an investor and you purchase something with the intention to keep and use to generate taxable income and then you subsequently sell the residential property, then you didn’t have to register for GST, and as such, on the sale, you didn’t have to pay GST.
It’s fairly complicated, and I would certainly seek very specific advice on a transaction-by-transaction basis. It really doesn’t make any difference what the structure is, whether it was your personal name, a company, or a trust. There’s obviously capital gains tax implications and income tax, and if your intention was to buy and sell, then you would not have capital gains tax; it would just be normal income tax at your marginal tax rate. If you bought something with the intention to keep and then you subsequently sell, then it’s a capital gains tax.
A number of parts to that question. I appreciate it’s probably a complicated scenario. Hopefully I’ve answered it, but please, on any GST, I would get independent, specific advice because there are many nuances to this.
Kevin: Daryl goes on to then ask the question about if he owned the house for three plus years then decided to split the block, is GST payable then?
Ken: Again, it comes back to intent. If you had secured that property, built that property, with the intention to keep it, then you wouldn’t have registered for GST and GST would not normally be applicable on the sale. If you did that transaction with the intention to sell, then obviously you would have had to register for GST and GST is payable. The issue then becomes if you change your intent and you needed to then register for GST, you have to be careful there.
An area that is normally overlooked is what is a new residential property? It is not just a brand new building that you built from the ground up. A substantially improved residential property becomes new because it’s nothing like what it was before the improvement. Again, get specific advice to see whether the renovation you’re doing turns it into a new property or it maintains its existing status.
Kevin: Very good. Daryl, there’s a great answer to your questions. Ken, I want to thank you once again for giving me some time.
Ken Raiss, of course, is from Chan & Naylor. Thanks for your time, Ken.
Ken: Thank you very much, and thank you, listeners.