Would the answer change if Derek constructed the house in October 2019 for the purpose of selling it for a profit?
Yes, for the following reasons:
- The sale of the house is likely to be considered a taxable supply. As a general rule, the ATO takes the view that the building of a house for sale is an isolated profit-making enterprise (refer to the TAX WARNING on page 107), resulting in Derek being required to register for GST as he meets the GST registration turnover threshold of $75,000.
- The supply of the house, constructed by Derek in October 2019, constitutes a supply of new residential premises that have not been created through substantial renovations of a building, and which are not commercial residential premises. This is the case regardless of whether the house was constructed on vacant land, or whether it was built to replace demolished premises on the same land.
As GST withholding applies to the transaction, the supplier notification should provide the following details:
- Derek’s full name and ABN.
- The GST inclusive contract price (i.e., $1.1 million).
- The amount that must be withheld by Clarence, being $77,000 if the margin scheme applies (i.e., 7% of $1.1 million) or, where the margin scheme does not apply, $100,000 (i.e., 1/11 of $1.1 million).
- The due date for the GST withholding amount to be paid to the ATO (i.e., settlement date).
Once the GST withholding amount has been paid, Derek receives a credit to his GST property credit account, which is automatically applied by the ATO against his net BAS liability. Any surplus credits are then refunded to him (subject to the ATO’s normal GST refund processes).