One of the most common questions conveyancers ask the ATO, is whether their vendor clients are ‘carrying on an enterprise’ and if they should be registered for GST? Another common question (this time from the purchaser’s conveyancer) is whether the purchaser is required to withhold GST on the sale? Our response is usually “it’s not always a straightforward answer”, however there are guidelines that can help conveyancers understand the general principles of whether someone is ‘carrying on an enterprise’ and whether they can or must have GST registration.
When acting for a vendor
If your vendors aren’t sure of their GST status, they should always seek advice from their tax adviser or the ATO before they put the property on the market. If the vendors are carrying on an enterprise, they may need to be registered for GST. This could even be the case for one-off property transactions. Examples might include:
• Purchasing land with an intention to subdivide into smaller lots and sell the vacant lots and/or build on to sell
• Demolishing their own home, subdividing the land into lots and building new units for sale.
People need to register for GST when their enterprise (or business) has a GST turnover of $75,000 or more (or $150,000 for ‘not for profit’ vendors). Generally, this is the gross income from all businesses they run minus the GST. As you know, the sales proceeds from a property transaction are usually much more than this.
When acting for a purchaser
People aren’t running an enterprise if all they are doing is buying or selling their own home for private use or buying land to build their family home. However, a purchaser generally does not know the full circumstances of a vendor’s business to determine if they should be registered for GST or not and whether GST should be withheld on the sale.
If you are acting for a purchaser and they think the vendor should be registered for GST, they should follow ATO’s guidance on when a purchaser has a withholding obligation, and when they can expect notification from the supplier.
Seeking tax advice
Tax obligations for vendors and purchasers can be quite complex and penalties can apply for vendors or purchasers if they get it wrong, that’s why it’s always best for conveyancers to refer clients to the ATO or a registered tax agent for assistance.
Here are a few ATO resources to help:
• Property and registering for GST
• GST property decision tool
• Webinar: GST at settlement – How to get GST right at settlement, defines what carrying on an enterprise is and provides examples .