GST in Australian Residential Construction: Services, New Premises and Withholding

What it is

GST in Australian residential construction works on a layered model. Services supplied by a registered builder are taxable. The first sale of new residential premises within five years of completion is taxable. Existing established homes are input-taxed. And since 1 July 2018 the GST on new residential premises is withheld by the purchaser at settlement and paid directly to the ATO. The framework sits in the A New Tax System (Goods and Services Tax) Act 1999 (Cth) and the supporting ATO public rulings.

Building services as taxable supplies

A registered builder making a supply of construction services in the course of an enterprise is making a taxable supply under section 9-5 of the GST Act. The builder charges 10 per cent GST on top of the contract price and remits the net GST through the Business Activity Statement. The builder can claim input tax credits on materials, subcontractor invoices, plant hire and other business inputs.

Registration is mandatory if GST turnover meets or exceeds the $75,000 threshold. Residential builders typically blow past that on a single job, so almost all are registered. Voluntary registration below the threshold is allowed and is common where the builder wants to recover input tax credits.

New residential premises

The first sale of new residential premises within five years of completion is a taxable supply under Subdivision 40-B of the GST Act. New residential premises include newly built homes that have not previously been sold as residential premises, substantial renovations and houses built on land that was previously vacant.

The developer or owner-builder selling within five years charges GST on the sale. After five years of continuous residential rental, the premises stop being new residential premises and a later sale becomes input-taxed.

Margin scheme

Division 75 of the GST Act lets a developer apply the margin scheme to the sale of new residential premises in some circumstances. Under the margin scheme, GST is calculated on the margin between the sale price and either the purchase price or the value of the land at a defined date, not on the full sale price. The buyer must agree in writing to the margin scheme before settlement.

GST withholding by purchasers

From 1 July 2018 the GST withholding regime in Subdivision 14-E of Schedule 1 to the Taxation Administration Act 1953 (Cth) shifts the GST remittance obligation. For a sale of new residential premises or potential residential land, the purchaser must withhold the GST and pay it directly to the ATO at settlement.

The withholding rate is 1/11th of the contract price for ordinary sales and 7 per cent of the contract price where the margin scheme applies. The vendor must give the purchaser a written notice with the supplier details, the amount to withhold and the date for payment. The vendor still lodges the BAS for the supply but the purchaser pays the GST.

Existing residential premises

Sales of existing residential premises that are not new residential premises are input-taxed under section 40-65 of the GST Act. The seller does not charge GST and the buyer does not claim input tax credits. Long-term residential rent is similarly input-taxed under section 40-35.

Why it matters

A residential builder needs to be GST registered if turnover meets the threshold, charge GST on services, claim input tax credits properly and apply the right treatment when the builder also sells a finished home. A spec-build or knock-down rebuild sold within five years is a taxable supply with purchaser withholding. A renovation of an existing established home is taxable services on an input-taxed premise. Getting the classification wrong on either side triggers ATO general interest charge and penalties.