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GST Trap - Selling disused residential premises |
Relying on the GST exemption for residential premises, without making allowances for the potential risks involved, could land you with a whopping tax bill. |
Consider a situation where a construction company has owned a residential property for some years before deciding to sell rather than develop. The property is vacant when sold, but has most recently been let for residential purposes, so the company does not include an amount for GST in the purchase price. |
The GST Act defines residential premises as "land or a building that is occupied as a residence or is intended to be occupied and is capable of being occupied as a residence". However, the courts have recently found that where a buyer has no intention to use a property for residential accommodation but to demolish it, and when it was not occupied as a residence at the time of settlement, the sale is a taxable supply. |
In this case, the selling company is faced with the task of recovering the GST from the buyer. |
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