GST on property sales

GST on property turns on a few questions asked in order. Is the seller carrying on an enterprise and registered or required to be registered? What kind of property is it: new residential, existing residential, commercial residential, commercial, farmland or vacant land? Is an exemption available, such as a going concern or farmland? If the sale is taxable, does the margin scheme apply? And does the purchaser have to withhold at settlement?

This guide works through each question with the section of the law behind it, then gives worked examples and a checklist you can use on a file. References to sections are to the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) unless they start with "Sch 1", which means Schedule 1 to the Taxation Administration Act 1953.

1. When a property sale is a taxable supply

A sale of property is a taxable supply under s 9-5 if four things are true: it is made for consideration, it is made in the course or furtherance of an enterprise the seller carries on, it is connected with the indirect tax zone, and the seller is registered or required to be registered. Even then, the sale is not taxable to the extent it is GST-free or input taxed.

Enterprise

Section 9-20 defines an enterprise as an activity or series of activities done in the form of a business, or in the form of an adventure or concern in the nature of trade, or on a regular or continuous basis in the form of a lease, licence or other grant of an interest in property, among other forms. The same section excludes activities done as a private recreational pursuit or hobby, and activities done by an individual, or a partnership of mostly individuals, without a reasonable expectation of profit or gain.

The ATO says on its GST and property page that buying land with the intention of developing it for resale at a profit can be an enterprise, and that even a one-off property transaction may be an enterprise. Constructing or selling the family home is given as an example of a private transaction.

Registered or required to be registered

An entity is required to be registered if it carries on an enterprise and its GST turnover meets the registration turnover threshold (s 23-5). The ATO states the threshold as $75,000 for businesses and $150,000 for non-profit bodies. In working out projected GST turnover, a supply made by way of transfer of a capital asset is disregarded (s 188-25), and the ATO says input-taxed sales are left out of GST turnover. On its property page the ATO also says not to count the sale of existing residential property, private sales such as the family home, or residential rental income.

A sale of new homes is not input taxed, so one development can take an unregistered person over the threshold if the activity is an enterprise. Commercial property sold by a registered seller in the course of its enterprise is taxable unless the going concern or farmland exemption applies.

2. Residential property: new, existing and commercial residential

Residential premises

Residential premises means land or a building that is occupied, or intended and capable of being occupied, as a residence or for residential accommodation, regardless of the term of occupation, and includes a floating home (s 195-1).

Existing residential premises are input taxed

A sale of real property is input taxed to the extent it is residential premises to be used predominantly for residential accommodation (s 40-65(1)). The sale is not input taxed to the extent the premises are commercial residential premises, or new residential premises other than those used for residential accommodation before 2 December 1998 (s 40-65(2)). Long-term leases of residential premises follow the same pattern under s 40-70, and residential rent is input taxed under s 40-35.

New residential premises

Under s 40-75(1), residential premises are new residential premises if they:

• have not previously been sold as residential premises (other than commercial residential premises) and have not previously been the subject of a long-term lease, or
• have been created through substantial renovations of a building, or
• have been built, or contain a building that has been built, to replace demolished premises on the same land.

Three limits apply:

• The five-year rental rule. Premises are not new residential premises if, for a period of at least 5 years since they first became residential premises (or were last substantially renovated, or last built), they have only been used for making input-taxed residential rent supplies under s 40-35(1)(a) (s 40-75(2)).
• Strata and subdivision. Premises created from residential premises that became the subject of a property subdivision plan are not new residential premises if the original premises were not new immediately before the plan, subject to the substantial renovation and rebuild rules (s 40-75(2AA)). Registering a strata plan over an old block of flats does not by itself make the units new.
• Once sold, no longer new. Premises that are new because of a substantial renovation or a rebuild stop being new once they are sold, or supplied by long-term lease, as residential premises (note 2 to s 40-75(1)).

Substantial renovations of a building are renovations in which all, or substantially all, of a building is removed or replaced. The renovations need not involve removing or replacing the foundations, external walls, interior supporting walls, floors, roof or staircases (s 195-1).

Commercial residential premises

Commercial residential premises includes a hotel, motel, inn, hostel, boarding house, caravan park or camping ground, or anything similar, but not premises to the extent they provide accommodation to students in connection with an education institution that is not a school (s 195-1). A sale of commercial residential premises by a registered seller in the course of its enterprise is not input taxed under s 40-65(2)(a).

Potential residential land

Potential residential land means land that it is permissible to use for residential purposes, but that does not contain any buildings that are residential premises (s 195-1). A sale of vacant land by a registered developer is generally taxable, and it is one of the two triggers for withholding at settlement.

3. Going concern sales (s 38-325)

The supply of a going concern is GST-free if all three conditions in s 38-325(1) are met:

1. the supply is for consideration,
2. the recipient is registered or required to be registered, and
3. the supplier and the recipient have agreed in writing that the supply is of a going concern.

Section 38-325 does not state a time for the written agreement. The ATO's ruling GSTR 2002/5 (para 20) refers to written agreements made on or before the day of the supply, so the clause belongs in the contract or another document signed by settlement, not a letter after it.

A supply of a going concern is a supply under an arrangement where the supplier supplies to the recipient all of the things necessary for the continued operation of an enterprise, and the supplier carries on, or will carry on, the enterprise until the day of the supply (s 38-325(2)).

For leased property, the ATO's position is that a fully tenanted building can be a going concern where the property and all leases, agreements and covenants are included in the sale. For a partly tenanted building, the vacant part must be actively marketed for lease or undergoing repairs or refurbishment, and all leases, agreements and covenants must be included. The ATO also says a sale of property on its own, without the enterprise, is not a going concern.

Purchaser adjustments after a going concern

The purchaser of a going concern pays no GST and so has no input tax credit. If the purchaser intends some of the supplies made through the enterprise to be neither taxable nor GST-free (for example, residential rent), it has an increasing adjustment under s 135-5. Later changes in that proportion are dealt with under Division 129 through s 135-10. The ATO's example is a registered buyer of a newly built $495,000 unit, bought as a going concern subject to a lease, who will make input-taxed residential supplies from it. The increasing adjustment is 10% x $495,000 x 100% = $49,500.

4. Farmland (s 38-480)

The supply of a freehold interest in land, or a long-term lease of land (or a lease by an Australian government agency), is GST-free under s 38-480 if:

• a farming business has been carried on on the land for at least the 5 years preceding the supply, and
• the recipient intends that a farming business be carried on on the land.

Like a going concern, a GST-free farmland purchase can give the purchaser an increasing adjustment under s 135-5 if part of the land is used to make input-taxed supplies. The ATO's example: Bill buys GST-free farmland for $500,000 and expects rent from the house to be 20% of his business. His increasing adjustment is 10% x $500,000 x 20% = $10,000.

5. The margin scheme (Division 75)

The margin scheme changes how GST is worked out on a taxable sale of real property. Instead of 1/11 of the price, GST is 1/11 of the margin (s 75-10(1)).

Which sales it can apply to

Under s 75-5(1) the margin scheme can apply to a taxable supply of real property made by selling a freehold interest in land, selling a stratum unit, or granting or selling a long-term lease, if the seller and the purchaser have agreed in writing that it is to apply.

The written agreement

The agreement must be made on or before the making of the supply, or within a further period the Commissioner allows (s 75-5(1A)). The ATO puts this as a written agreement before settlement, for sales on or after 29 June 2005. There is no set format. The ATO says it must identify the property and can be included in the sale contract. Requests for an extension of time go to the ATO in writing.

Eligibility

The scheme does not apply if the seller acquired the entire interest through a supply that was ineligible for the margin scheme (s 75-5(2)). A supply is ineligible for the margin scheme under s 75-5(3) if, among other cases:

• it was a taxable supply on which GST was worked out without the margin scheme (that is, the seller bought it fully taxable),
• the seller inherited it from a deceased person who had acquired all of it through an ineligible supply,
• the seller acquired it as a GST-free going concern or GST-free farmland from a registered entity that had itself acquired it fully taxable without the margin scheme.

Where only part of the property was acquired through an ineligible supply, the scheme can still apply but the seller may have an increasing adjustment under s 75-22.

Property bought fully taxable from a developer is not eligible.

Working out the margin

The margin is the amount by which the consideration for the sale exceeds the consideration for the seller's acquisition (s 75-10(2)). This is the consideration method. Development, building and selling costs are not added to it. The ATO's worked examples treat those costs through GST credits instead, where tax invoices are held.

The valuation method applies in the cases set out in the table in s 75-10(3). The main ones:

Item	When a valuation may be used	Valuation date
1	Seller acquired the interest before 1 July 2000 (and items 2 to 4 do not apply)	1 July 2000
2	Seller acquired before 1 July 2000 but did not become registered or required to be registered until after 1 July 2000	Date of effect of registration, or the date of applying if earlier
3	Seller registered or required to be registered, held since before 1 July 2000, with improvements on the land at 1 July 2000	1 July 2000
4	Seller is the Commonwealth, a State or a Territory, held since before 1 July 2000, with no improvements at 1 July 2000	The day of the supply

The valuation has to be an approved valuation, made under the Commissioner's requirements (s 75-35). The ATO lists three approved methods:

• a valuation by a professional valuer,
• a valuation based on the consideration under a contract of sale, if the contract was entered into before the valuation date, and
• a valuation prepared by a state or territory department for rating or taxing purposes.

The determination in force is the A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination 2020 (F2020L00346), made under s 75-35(1). It applies to valuations for taxable supplies made on or after 1 March 2010 and repealed MSV 2009/1. Earlier determinations (MSV 2005/3 and MSV 2009/1) are repealed but matter for older supplies. Under the 2020 determination, a contract-price valuation must come from an arm's length contract executed or exchanged before the valuation date, and a state or territory valuation must be the most recent one made before the valuation date for rating or land tax. The valuation must be made by the due date for lodging the BAS for the tax period the GST on the sale is attributable to, with a later date where the Commissioner has extended the time to agree to the margin scheme. The ATO also says that once a valuation has been used to work out the margin, the seller cannot later switch to another valuation, method or the consideration method.

What the purchaser loses

An acquisition of land under the margin scheme is not a creditable acquisition (s 75-20). The ATO states this plainly: no GST credit can be claimed when buying property where the margin scheme was used. For a registered purchaser who would otherwise claim a credit, that is a real cost and a common negotiation point.

6. GST at settlement withholding (Sch 1 Subdiv 14-E)

Who must withhold

Under Sch 1 s 14-250(1) and (2), the purchaser must pay an amount to the Commissioner if it is the recipient of a taxable supply, by way of sale or long-term lease, of:

• new residential premises that have not been created through substantial renovations of a building and are not commercial residential premises, or
• potential residential land that is included in a property subdivision plan and does not contain any building in use for a commercial purpose.

For potential residential land, the obligation applies only if the purchaser is not registered, or does not acquire the land for a creditable purpose (s 14-250(1)(b)). The ATO's list of exclusions also includes commercial property and residential premises that are no longer new.

How much

Situation	Withholding amount	Source
Fully taxable sale	1/11 of the contract price	Sch 1 s 14-250(6)(b)
Margin scheme applies	7% of the contract price. The Act sets 7% where no Minister's determination is in force, and a determination can set a rate above 7% but not above 9% (s 14-250(6)(a)(ii) and (8)). The ATO's GST at settlement guidance states 7%	Sch 1 s 14-250(6)(a), (8)
Supplier is the purchaser's associate and the price is nil or below GST-inclusive market value	10% of the GST-exclusive market value	Sch 1 s 14-250(9)
Mixed supply where the withholding part can be worked out	The amount that relates to the withholding part	Sch 1 s 14-250(10)

The contract price is the price in the contract, subject to normal settlement adjustments (s 14-250(7)). Where there is more than one purchaser, each is treated as receiving a separate proportional supply, but joint tenants are treated as a single recipient (s 14-250(11)).

When it is paid

The amount is due on or before the day any of the consideration, other than a deposit, is first provided (s 14-250(4)). The ATO describes this as the day of settlement for a standard land contract, and the day the first instalment is paid for an instalment contract.

Form one and Form two

Only purchasers (or a representative such as a conveyancer acting under a signed declaration) lodge the forms, through an e-conveyancing platform or the ATO online form:

• Form one, GST property settlement withholding notification. Can be lodged any time after the contract is entered into, and up to the time the withholding payment is due.
• Form two, GST property settlement date confirmation. For a standard land contract, lodged within 2 business days before settlement, on the day of settlement, or on the next business day after. It must be lodged before the payment can be processed.

Before settlement the supplier must give the purchaser written notice of whether withholding applies, the amount and the supplier's name and ABN (Sch 1 s 14-255). Failing to give it attracts a penalty but does not remove the purchaser's obligation. Payment uses the payment reference number issued when Form one was lodged. The supplier still reports the GST on its activity statement. The ATO describes the withheld amount being credited first to the supplier's GST property credit account and then transferred to its activity statement account.

7. Subdivisions and developers

For a registered developer, the usual pattern is: GST credits on construction and development costs with tax invoices, GST on the sale of each new dwelling or lot, and withholding by the purchaser at settlement. The choices to make early are whether the margin scheme is available (it depends on how the land was acquired) and whether the GST clause in each contract matches the treatment.

When land is subdivided, the margin for each lot uses the corresponding proportion of the original acquisition cost or valuation (s 75-15). The ATO's subdivision example apportions a $240,000 cost across a 2,000 square metre parcel by area: a 600 square metre lot carries $72,000 (600/2,000 x $240,000) and an 800 square metre lot carries $96,000.

8. Property in the hands of individuals

Most individuals who sell property are not making taxable supplies, because they are not carrying on an enterprise or are not registered or required to be registered. The hard cases are individuals who subdivide, knock down and rebuild, or build a few units.

The questions to work through:

• Is there an enterprise? Section 9-20 covers activities in the form of a business, and an adventure or concern in the nature of trade. The ATO says buying land with the intention of developing it for resale at a profit may be an enterprise, and that a one-off property transaction may be one. In MT 2006/1 the ATO says the selling of an asset may not of itself amount to an enterprise, so the surrounding activities need to be considered (para 163), and that small, ad hoc activities with little repetition are hard to treat as an enterprise (para 186).
• Is it a hobby or without a reasonable expectation of profit? Both are excluded from enterprise for individuals under s 9-20(2)(b) and (c). A property project done to make a profit will rarely fall within either exclusion.
• Is the threshold met? If there is an enterprise, the sale of new residential premises counts toward GST turnover. The family home and existing residential property do not, on the ATO's guidance.
• If required to be registered, from when? GST is payable on a taxable supply whether or not the person actually registered. Missed registration on a development usually means GST on the sales without the benefit of having negotiated a GST-inclusive price or a margin scheme clause.

Treat the income tax and CGT answer as a separate question. A change of use, such as renting out unsold new homes, can also give rise to Division 129 adjustments.

9. Worked examples

These examples are constructed to show the rules. They are not ATO examples unless stated. Figures are rounded to the nearest dollar.

Example 1: New house, fully taxable

Harbour Build Pty Ltd, registered, builds a new house on land it bought fully taxable from another developer. It sells the house and land to a private buyer for $990,000. Because Harbour Build bought the land fully taxable, the margin scheme is not available (s 75-5(3)(a)).

• GST on the sale: $990,000 x 1/11 = $90,000.
• Withholding by the purchaser: 1/11 of the contract price = $90,000, due at settlement.
• The purchaser lodges Form one after exchange and Form two around settlement. Harbour Build reports $90,000 GST on its BAS and receives a credit for the amount withheld.

Example 2: Townhouse under the margin scheme

Ridge Developments Pty Ltd, registered, buys a vacant block from a private individual for $400,000. The seller was not registered, so the purchase was not a taxable supply and Ridge is eligible for the margin scheme. Ridge builds a townhouse and sells it for $1,100,000, with a margin scheme clause in the contract signed before settlement.

• Margin: $1,100,000 - $400,000 = $700,000 (s 75-10(2)). Building costs are not deducted from the margin. Ridge claims GST credits on them through its BAS where it holds tax invoices.
• GST: $700,000 x 1/11 = $63,636.
• Withholding: 7% x $1,100,000 = $77,000.
• The withheld amount is more than the GST on the sale. The credit for $77,000 goes to Ridge's activity statement account and is offset against what it owes.
• The purchaser cannot claim a GST credit (s 75-20).

Example 3: Leased factory sold as a going concern

A registered SMSF trustee owns a factory leased to an unrelated tenant. It sells the factory to a registered company for $3,300,000, with the lease assigned and a signed going concern clause. The seller keeps the lease running until settlement. All three s 38-325 conditions are met and the sale is GST-free. If the purchaser had not been registered or required to be registered, the exemption would fail, and the GST clause would decide who bears the $300,000 (1/11 of $3,300,000 if the price is GST-inclusive).

Example 4: New apartments rented for 5 years

An investor company, registered, built six apartments and has rented all of them since completion. More than 5 years later, used only for input-taxed residential rent, it sells them. Under s 40-75(2) they are no longer new residential premises. The sale is input taxed, there is no GST and no withholding, and the company has no GST credits on the selling costs. Any rental gap, or any period when the apartments were used for something other than input-taxed rent, needs checking against the wording of s 40-75(2).

Example 5: Individual subdivides a backyard

An individual splits the backyard of her home into a second lot and sells it vacant for $660,000. She is not registered. On the ATO's guidance, constructing or selling the family home is private, and the selling of an asset may not of itself be an enterprise. If she did no more than obtain approval and sell, she would usually not be carrying on an enterprise and there is no GST. If she bought the block intending to subdivide and sell at a profit, borrowed to develop, and built a dwelling on the new lot for sale, the facts point toward an enterprise, and a sale over the threshold would make her required to be registered. Document the facts and, if they are borderline, consider a private ruling.

10. Decision checklist

Related: BAS preparation checklist, CGT small business concessions, NSW stamp duty and land tax, Victorian stamp duty and land tax, Ask Nagaris skills.

Questions

Is the sale of an existing house subject to GST?

Generally no. A sale of residential premises used predominantly for residential accommodation is input taxed under s 40-65 of the GST Act, unless the premises are new residential premises or commercial residential premises.

When are residential premises new residential premises?

Under s 40-75, when they have not previously been sold as residential premises or long-term leased, or were created by substantial renovations, or were built to replace demolished premises. They stop being new if only rented as residential premises for at least 5 years.

What are the requirements for a GST-free going concern?

The sale must be for consideration, the purchaser must be registered or required to be registered, both parties must agree in writing that it is a going concern, the seller must supply all things necessary to continue the enterprise, and the seller must carry on the enterprise until the day of supply (s 38-325).

When must the margin scheme be agreed?

In writing, on or before the making of the supply, or within a further period the Commissioner allows (s 75-5(1A)). The ATO describes this as before settlement.

How much does a purchaser withhold at settlement?

1/11 of the contract price for a fully taxable sale, 7% of the contract price where the margin scheme applies, or 10% of the GST-exclusive market value where the supplier is an associate and the price is below market value (Sch 1 s 14-250 TAA 1953).

When is farmland GST-free?

Under s 38-480, when a farming business has been carried on on the land for at least the 5 years before the supply and the purchaser intends that a farming business be carried on on the land.

Can a purchaser claim a GST credit on a margin scheme purchase?

No. An acquisition under the margin scheme is not a creditable acquisition (s 75-20).

Sources

• A New Tax System (Goods and Services Tax) Act 1999 (compilation in force 1 January 2026), ss 9-5, 9-20, 23-5, 38-325, 38-475, 38-480, 40-35, 40-65, 40-70, 40-75, 75-5, 75-10, 75-11, 75-15, 75-20, 75-22, 75-35, 135-5, 135-10, 188-25, 195-1
• Taxation Administration Act 1953, Schedule 1, ss 14-250 and 14-255 (compilation in force 27 August 2026)
• ATO, GST and property
• ATO, GST and residential property
• ATO, Selling a going concern
• ATO, Farmland
• ATO, GST and the margin scheme
• ATO, Eligibility to use the margin scheme
• ATO, Written agreement to use margin scheme
• ATO, Margin scheme valuations
• ATO, Calculating the GST payable (margin scheme)
• ATO, GST at settlement
• ATO, GST at settlement: a guide for purchasers and their representatives
• ATO, GST property settlement online forms and instructions
• ATO, Who completes and lodges these forms
• ATO, How to pay the withholding amount
• ATO, Registering for GST
• ATO, MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise
• A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination 2020 (F2020L00346)
• ATO, GSTR 2002/5 Goods and services tax: when is a 'supply of a going concern' GST-free?