If you build a new residential premises with the intention to sell, you are liable for all GST on the sale. However, you can claim GST credits for your construction costs and any purchases you make related to the sale, subject to the normal rules on GST credits.

If GST applies, you generally pay GST equal to one-eleventh of the sale price. Although if eligible, you can work out your GST liability using the margin scheme, under which your GST liability is one-eleventh of the margin on the sale of the property, rather than one-eleventh of the total selling price.

Residential premises include houses, units, and flats that are occupied or can be occupied as residences. It does not include vacant land. Residential premises are new when any of the following apply:

• They have not been sold as residential premises before
• They have been created through substantial renovation; or
• new buildings have replaced demolished buildings on the same land.

However, residential premises are generally no longer new residential premises if they have been continuously rented for five years after first becoming new residential premises. In this case, the sale of the property after being rented out is input taxed.

If you claimed GST credits on the construction costs and related purchases, you may have to make one or more adjustments that effectively reverse these credits, as you are not entitled to GST credits for things purchased to make input taxed supplies.

New residential premises rented out continuously for five years or more may still be considered new residential premises if they have been held for the dual purpose of sale and rent.

If you rent out the new premises while you are planning to sell them, you will need to adjust part of the GST credits you claimed. You must show you intend to sell the premises. Actively marketing the premises for sale is one way of showing this.

Looking for more information on property development that is tailored to you and your situation? Get in touch with us here at IP Tax and you will hear from an investment property strategist that can answer all your questions surrounding GST credits and more.