Most residential property sales in Australia have no GST in them at all. But sell the wrong kind of property the wrong way, and GST — plus a withholding obligation at settlement — can apply whether you planned for it or not.
The Basic Rule: New vs Established Residential Premises
If you sell existing, established residential premises, the sale is input taxed. That means you don't charge GST on the sale, and you can't claim GST credits for anything you purchased in connection with it — agent's commission, legal fees, marketing costs, and so on.
The sale becomes a taxable sale — GST applies — where the property counts as "new residential premises", or where it is potential residential land sold as part of a property subdivision plan by a business or enterprise registered (or required to be registered) for GST.
What Counts as "New Residential Premises"
Under the ATO's guidance, residential premises are "new" if any of the following apply:
- they have not previously been sold as residential premises — that is, they are newly constructed
- they have been created through substantial renovations of a building — meaning all, or substantially all, of the building has been removed or replaced
- a new building has been built to replace a demolished building on the same land
There is also a time limit on how long premises stay "new". Premises stop being new residential premises once they have been used only for making residential rental supplies continuously for at least 5 years since they were first built, last substantially renovated, or built to replace a demolished dwelling. A sale after a substantial renovation restarts that five-year clock from the date the renovation is completed.
The Margin Scheme, Explained
Where the sale of new residential premises or potential residential land is taxable, an eligible seller can choose to apply the margin scheme. Under the margin scheme, GST is calculated as 1/11th of the margin — broadly, the difference between the sale price and the price originally paid for the property (or an approved valuation, in some cases) — rather than 1/11th of the full contract price.
Two things to keep in mind if the margin scheme is used:
- the purchaser cannot claim a GST credit for the GST included in the price
- the margin scheme cannot be applied again on a later resale of the same property
Whether the margin scheme is available at all depends on how the seller originally acquired the property, and this needs to be checked before a contract is signed — not after.
Deciding whether to apply the margin scheme, and confirming eligibility, is a decision made before contract exchange — not something to work out at settlement.
Book a Free Consultation →GST at Settlement: The Withholding Obligation
Since 1 July 2018, most purchasers buying new residential premises or potential residential land must withhold the GST component of the price and pay it directly to the ATO at settlement, instead of paying the full price to the vendor and leaving the vendor to remit GST on their next activity statement.
The amount to be withheld is:
- 1/11th of the contract price for a standard taxable supply, or
- 7% of the contract price where the margin scheme applies (and the seller has notified the purchaser accordingly)
Two things need to happen procedurally. First, the supplier must give the purchaser written notice before settlement stating whether the sale carries a withholding obligation and, if so, the amount and when it is payable — this notice is commonly built into the contract of sale. Second, the purchaser (or their representative) must lodge two online forms with the ATO: a GST property settlement withholding notification form after exchange, and a GST property settlement date confirmation form once settlement has occurred.
Commercial Residential Premises Are Different Again
Commercial residential premises — hotels, motels, boarding houses, and similar accommodation — are generally taxable supplies regardless of whether they are new or existing. The input-taxed treatment available for established residential homes doesn't apply to this category, so a sale in this category needs to be assessed on its own terms rather than assumed to follow the residential rules.
Common Mistakes We See
The two errors that come up most often in practice are: sellers assuming a renovated property is still "established" when the renovation was substantial enough to reset its status to "new", and purchasers or their conveyancers missing the withholding notification and payment steps at settlement because the contract's GST clause wasn't reviewed closely enough. Both are avoidable with a review before contracts are exchanged.
How Phan Campbell & Associates Can Help
At Phan Campbell & Associates in Footscray, our accounting team advises developers, renovators, and property investors on whether a sale attracts GST, whether the margin scheme is available, and how to structure a transaction correctly from the outset.
Because we are a combined legal and accounting firm, the same team can also prepare the contract of sale, the GST withholding notice, and manage the property law side of settlement — so the tax position and the conveyancing are handled together, not as two separate conversations.
If you're a landlord rather than a developer, our related article on the ATO's property management data-matching program protocol covers how rental income and expense data is checked against your return.
Frequently Asked Questions
1. Do I pay GST when I sell my house?
If you are selling established, existing residential premises, the sale is input taxed — no GST applies and you cannot claim GST credits on costs relating to the sale. GST only applies where the property counts as "new residential premises", such as a newly built home, a substantially renovated property, or a build replacing a demolished dwelling.
2. What is the GST margin scheme?
The margin scheme lets an eligible seller of new residential premises or potential residential land pay GST on the margin between the sale price and the original purchase price (or an approved valuation), rather than on the full contract price. It can significantly reduce the GST payable, but the seller cannot claim GST credits on the sale and cannot apply the margin scheme again on a later resale of the same property.
3. What is GST at settlement?
Since 1 July 2018, purchasers of new residential premises or potential residential land generally must withhold the GST component of the price and pay it directly to the ATO at settlement, rather than paying it to the vendor. The amount withheld is 1/11th of the contract price, or 7% of the contract price where the margin scheme applies.
4. How do I know if premises count as "new residential premises"?
Premises are "new" if they have not previously been sold as residential premises, have been created through substantial renovations, or replace a demolished building on the same land. Premises stop being "new" once they have been continuously rented out for at least 5 years since construction or renovation.