Good Afternoon ATO,
I have a client that purchased their property in 2019 and have rented it out since then and lived elsewhere with that rental income. They are not registered for GST and have never carried out Business Activities. When they purchased the property in 2019 they had no intention to develop it. In 2024 (now) they have decided to subdivide and build the property into duplexes (2 units).Once completed they have not yet decided what they want to do with them whether that be sell both, sell one and rent one out or rent them both out 1) Assuming they sell both will they be eligible for the 50% CGT discount on both properties as they held the original property for more than 1 year? 2) Will they have to pay GST on the sale of the properties even if they are not currently registered for it? 3) If so assuming they are eligible for the Margin Scheme what are they paying the GST on. Noting that they purchased the property 5 years ago and the land/original property went up in value since then will the margin scheme use the value of the property at build or the original purchase price. Cause if the original purchase price is used they are paying GST on the Capital Growth which is already covered by CGT. Additionally they would not have been considered an entity in the years proceeding the development if they are now.
4) If they sell one straight after build and keep one for 5 years. Can they claim all the GST credits from the total build against the sale price of the singular property effectively reducing the GST payable to zero. What would be the purchase price that’s used in this scenario (margin scheme employed). Would it be the original purchase price or pre build valuation divided by two? Would the construction cost have to be divided by two as well if you wanted to use the margin scheme. How do you delineate what the construction costs were for each unit as builders generally quote for the entire build? And what if the fittings are better in the one unit being sold making its construction 3/4 of the total construction cost as opposed to one half.
5) If they do not register for GST before or during build can they still claim GST credits on construction if they are required to register and pay for GST when they sell.
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