If you are selling a vacant land, then you need to be mindful of whether you need to pay GST (Goods and Services Tax). GST rate is currently 10%.

Generally speaking, if you are selling “residential premises”, then GST is not payable. However, if you are selling “vacant land” upon which a residential building may be constructed, then it is not considered “residential premises” for the purposes of GST. To be “residential premises”, the land must be either occupied as a residence or be capable of being occupied as a residence.

The standard Contract for the Sale and Purchase of Land provides that, unless otherwise specified in your contract, the purchase price includes any GST payable.

When a standard contract is used to sell vacant land, it could very well be the case where the vendor may not be able to recover any additional GST amount from the purchaser. It does not matter whether the land is zoned as residential and it does not matter whether you are registered for GST. In those circumstances, as a vendor, you would need to:

1. pay to the Australian Taxation Office 1/11th of the purchase price, and

2. when requested, give the purchaser a tax invoice so the purchaser can obtain a credit for the GST paid.

Vendors and their sales agents should therefore be mindful of their GST liabilities on the sale of vacant land. You should ask for a special condition to be included in the contract, requiring the purchaser to pay GST “in addition” to the purchase price.

If the purchaser does not agree to such special condition, then you should at least consider whether you could apply “margin scheme” to the transaction and get the purchaser to agree to it prior to signing the contract. Sometimes, “margin scheme” will allow you to reduce the GST amount to 7%.

An example where “margin scheme” could apply is where land is sold to a builder, who intends to resell to private individuals for residential purposes after construction of the buildings. The builder will need to buy on the “margin scheme” if it intends to sell on the “margin scheme”.

Sometimes even if the contract is already signed, a co-operative purchaser, who is not registered for GST, may still be prepared to agree to margin scheme being applied.

If you have any questions on this issue, please feel free to contact our office immediately.

References:

Section 9-5, A New Tax System (Goods And Services Tax) Act 1999 (Cth).

Section 40-54, A New Tax System (Goods And Services Tax) Act 1999 (Cth).

*Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to changes over time. You should always seek professional advice before taking any course of action*.