GST and Property Sales in Australia: A Seller's Guide

GST in Australia is governed by A New Tax System (Goods and Services Tax) Act 1999 (Cth), administered by the Australian Taxation Office (ATO). The general rule for GST and residential property is:

For the vast majority of Sydney homeowners selling a house, apartment, or investment property that was built and previously occupied, GST is simply not a concern. Your sale is input-taxed or outside the GST net entirely.

The concept of "new residential premises" is the critical threshold for GST liability. Under the GST Act, a property is considered "new residential premises" if:

1. Newly Built: It has not previously been sold as a residential premises. The first sale of a newly constructed house or apartment is subject to GST.

2. Substantially Renovated: A property that has been substantially renovated (to the point where the original structure is largely replaced) is treated as new residential premises. The ATO's definition of "substantial renovation" involves the replacement of most internal and external building elements — not merely cosmetic upgrades like new kitchens and bathrooms.

3. Five-Year Rule: A residential property that has not previously been sold AND was not previously used as a residence during the 5 years prior to sale is treated as new residential premises.

Important Note: If you purchased a brand-new apartment from a developer (off-the-plan or newly completed) and you are now selling it, you are generally NOT required to charge GST on the resale. Once the developer's first sale has occurred, the property becomes an existing dwelling for all subsequent sales.

Developer Situations: If you are a property developer who builds and sells residential dwellings as part of a GST enterprise, your sales are subject to GST and you must be registered for GST. This is common for developers of house-and-land packages, apartment buildings, and residential subdivisions.

Since 1 July 2018, the ATO has required buyers of new residential dwellings and residential land in certain subdivisions to withhold the GST component of the purchase price and pay it directly to the ATO at settlement, rather than paying the full price to the vendor.

How GST withholding works:

The Withholding Amount: The buyer is required to withhold 1/11th of the total purchase price (which equals the GST component of a GST-inclusive price) or 7% of the purchase price if the sale uses the GST margin scheme.

Failure to Notify: If a vendor fails to notify a buyer about GST withholding requirements, the vendor commits an offence and may face penalties.

For Private Sellers of Existing Dwellings: The GST withholding rules do not apply to the resale of existing residential dwellings. You do not need to provide a withholding notification, and the buyer pays the full purchase price to your solicitor/conveyancer at settlement.

The GST margin scheme is an alternative GST calculation method available to property developers and subdividers in specific circumstances. Instead of calculating GST on the full sale price, the margin scheme allows GST to be calculated on the "margin" — that is, the difference between the sale price and the original acquisition cost.

The Tax Saving: In property development, where the increase in land value during development can be significant, the margin scheme can substantially reduce the GST liability compared to calculating GST on the full sale price.

Example: A developer acquires land for $500,000, develops it, and sells the completed property for $1,500,000. Under the standard GST method, GST = 1/11 × $1,500,000 = $136,364.

Under the margin scheme, GST = 1/11 × ($1,500,000 – $500,000) = 1/11 × $1,000,000 = $90,909. Saving: $45,455.

Practical Note for Private Sellers: The margin scheme is specifically relevant to property developers and subdividers. For private homeowners selling existing dwellings, the margin scheme is not applicable and GST is simply not payable.

For a private homeowner selling an existing residential dwelling in a private off-market transaction, the GST position is clear and simple: GST does not apply.

• The sale of an existing residential dwelling is input-taxed under the GST Act
• No GST is charged on the sale price
• No GST withholding notification is required
• No GST return needs to be lodged in relation to the sale

Your conveyancer will include a standard GST warranty in the contract of sale confirming that GST is not applicable to the transaction. This is routine.

The only situation where a private seller might encounter GST complexity is if they have used the property as a short-term holiday rental (STRA) and registered for GST as a result — in which case specific ATO advice is needed about whether the change of use or the sale triggers any GST obligation.

This is an edge case affecting a small proportion of sellers and requires specific advice from a registered tax agent.

Under the Income Tax Assessment Act 1997, Capital Gains Tax applies to the sale of residential property in Australia unless the main residence exemption is claimed. If the property was used as an investment, CGT is calculated based on the difference between the sale price and the property's cost base.

The cost base includes the original purchase price, stamp duty, legal fees, and capital renovation costs. Sourcing a tax accountant early ensures you calculate this cost base correctly.

Direct off-market transactions allow you to plan exchange and settlement dates to align with your personal tax brackets, minimizing tax.