Shifting property market creates GST traps for developers
Developers pulling properties off the market must pay close attention to the rules around GST credits, a technical expert warns.
Insyt chief executive Darren Wynen said recent changes in the property market are prompting some developers to take their properties off the market after originally intending to sell.
“There are developers who may have been registered for GST, claimed all the credits in relation to the development with the intention to sell but have then taken that property off the market. They may not have a full understanding about how the adjustment periods operate,” said Mr Wynen.
“There’s a common misconception that you can just go back and amend the relevant BAS statement but there are year-end adjustments that need to be made in the 30 June BAS. So there’s a bit of misunderstanding about how the adjustment periods operate.”
The ATO sets out its guidance on this issue in Tax Ruling GSTR 2009/4. The tax ruling explains the Commissioner’s view of when an adjustment for a change in the extent of creditable purposes arises under Division 129 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in relation to acquisitions made in constructing new residential premises.
Another common area of misunderstanding is the five-year rule which states that if a residential property has been rented for more than five years it will be input taxed, said Mr Wynen.
“The property will be input taxed if it’s been rented continuously for five years but that test is quite a strict test in terms of making sure you mean it,” he said.
“For example, if you’re renting it out at the same time as you’re trying to sell it, then that doesn’t count towards a five-year period.
“So there’s some people who don’t understand that they haven’t actually started that five-year clock yet.”
CoreLogic data released today indicates that rental values are continuing to rise with rents up 1.6 per cent in the September quarter. While the increase in rental values eased slightly from the June quarter, vacancy rates fell to new record lows across the country.
CoreLogic economist Kaytlin Ezzy said that record high net overseas migration, fuelled by a combination of an increased flow of new arrivals and weaker departure numbers, coupled with a continued shortfall in rental listings, saw the vacancy rates falling to new record lows across both the combined capitals (1.0 per cent) and combined regional markets (1.2 per cent).
Ms Ezzy said national rents have now risen for 38 consecutive months, taking rental values 30.4 per cent higher since July 220. This has added the equivalent of $137 to the median weekly rent.
While home values are also continuing to rise, CoreLogic research director Tim Lawless said the upswing in Australian housing values lost some steam over the past quarter.
CoreLogic’s national Home Value Index (HVI) recorded a 2.2 per cent rise for the September quarter compared with the 3 per cent rise through the June quarter.
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