Goods and Services Tax (GST) is not a pass-through for a property developer. On a new residential project you generally hand one eleventh of every sale price to the Australian Taxation Office (ATO), you claim back the GST buried in your construction and consultant invoices, and the net of those two numbers is a real cost that sits between your top line and your profit. Get the treatment wrong and you can overstate a margin by six figures, or find a withholding amount pulled out of your settlement proceeds that you did not model.
This guide is written for the developer working out how GST actually lands on a deal: when you must register, whether your sale is taxable, what you can claim back, how the margin scheme changes the arithmetic, and how the tax hits your cashflow at settlement. It is the umbrella over the detail. Where a topic has its own deep guide, such as the margin scheme, this stays at the umbrella level and sends you deeper where it helps. GST is only one of the taxes on a development, and it works alongside the income tax question covered in capital gains tax on property development. None of this is tax advice, and the treatment turns on your facts, so read it as a way to frame the questions you take to your adviser.
How does GST actually hit a development margin?
GST hits your margin as the gap between what you collect on sales and what you claim back on costs. On a taxable sale you are liable for one eleventh of the sale price. Against that, you can generally claim the GST included in your development costs as input tax credits. What you send to the Australian Taxation Office (ATO) is the difference, and that difference is money that never reaches your profit line.
Take a small project. You build four townhouses and sell them for $850,000 each, a total of $3,400,000. Because these are new residential premises, the sale is taxable, so your GST on sales is one eleventh of $3,400,000, which is $309,091. Your construction, professional fees and other taxable costs come to $1,760,000 including $160,000 of GST, which you claim back as input tax credits. You bought the land for $900,000 from a private seller who was not registered, so there is no credit on the land. Your net GST payable is $309,091 less $160,000, which is $149,091 remitted to the Australian Taxation Office (ATO).
That $149,091 is the point. Developers who model on gross sale prices and forget the tax flatter the deal. The figure a feasibility should carry as revenue is the Gross Realisation Value (GRV) net of GST, here $3,090,909, not the $3,400,000 on the price list. Cost lines cut the other way: you model them net of the credits you will recover. The habit that keeps a model honest is to hold every line consistently, either all excluding GST or all including it, and to treat the net GST position as its own line rather than smearing it through revenue and costs.
Does GST change from state to state?
No. GST is a Commonwealth tax under the A New Tax System (Goods and Services Tax) Act 1999, and it applies the same way in New South Wales, Victoria, Queensland, South Australia, Western Australia, Tasmania, the Australian Capital Territory and the Northern Territory. The rate is 10%, the margin scheme rules are national, and the withholding at settlement is national. You do not need eight versions of this section.
The tax that does vary by state is stamp duty, also called transfer duty, and it is separate from GST. Duty is assessed by each state revenue office on the land you acquire, and it is generally calculated on the GST-inclusive purchase price, so the two taxes interact on the way in even though they are administered by different authorities. Duty is a cost line you carry into a feasibility; it is not part of your GST calculation and it is not something the feasibility platform works out for you.
When do you have to register for GST as a developer?
You must register for GST once your GST turnover reaches $75,000 or more, and a single development project almost always clears that on its own. The Australian Taxation Office (ATO) registration threshold is $75,000 of current or projected annual turnover ($150,000 for non-profit bodies), and you have 21 days to register once you expect to cross it. Registration requires an Australian Business Number (ABN), which you can apply for at the same time.
The threshold is only half the test. You also have to be carrying on an “enterprise”. The Australian Taxation Office (ATO) guidance on property and registering for GST is blunt that buying land with the intention of developing it for resale at a profit is an enterprise, and that even a one-off transaction can qualify. The Australian Taxation Office (ATO) uses its own worked example: a couple who buy a block, subdivide into two lots and sell them at a profit are running an enterprise, and GST at settlement may apply. A neighbouring couple who subdivide off a lot to give to their daughter to build on are not. Intention and profit-making purpose are what separate the two.
One nuance that trips up developers who also hold rental stock: when you work out your GST turnover for the registration test, you exclude the sale of existing residential property and residential rent, because those are input taxed. Your turnover for the threshold is built from your taxable activity, which for a developer is the new stock and the commercial space, not the passive rent.
The reason registration matters to your margin is that it is the switch that turns on input tax credits. Until you are registered, you cannot claim the GST on your land, your consultants or your construction. Register late and the Australian Taxation Office (ATO) can still make you account for GST on sales from the date you were required to register, whether or not you charged it, so late registration is a way to carry the liability without the credits.
Is your sale taxable, GST-free, or input taxed?
Every property sale falls into one of three GST buckets, and which one you land in decides both what you charge and what you can claim. The Australian Taxation Office (ATO) sets out the three treatments as follows.
A taxable sale means you are liable for GST on the sale and can claim credits for what you bought to make it. New residential premises and most commercial property sit here. This is the developer’s usual home.
A GST-free sale means you are not liable for GST on the sale but you can still claim credits for your costs. The sale of a going concern and the sale of eligible farmland sit here. This is the best of both worlds when you can access it, and it is covered further down.
An input taxed sale means you are not liable for GST on the sale and you cannot claim credits on the related costs. Existing residential premises and residential rent sit here. If you buy an established house, the sale to you is input taxed, so there is no credit to claim on the purchase.
The practical read for a developer is that new residential stock is taxable, which is what lets you recover the GST on construction, while anything you hold and rent as housing is input taxed, which strips those credits away. A single sale can also be mixed, combining taxable and input taxed parts that have to be apportioned, as the mixed-use case below shows. The line between the treatments is where most GST errors on developments are made.
What counts as “new residential premises”?
New residential premises are, broadly, homes that have not been sold as residential premises before. The Australian Taxation Office (ATO) definition of new residential property captures premises that have not previously been sold as residential premises, premises created through substantial renovations, and new buildings that replace demolished buildings on the same land. When you build to sell, your product is new residential premises, the sale is taxable, and you can claim credits on the build. That is the ordinary developer position.
There is a time limit on “new” that matters if you hold rather than sell. Premises stop being new once they have been rented as residential premises for at least five years continuously, provided they have not also been actively marketed for sale during that time. Sell within the five years and the sale is a taxable supply of new residential premises. Rent continuously for more than five years and then sell, and the sale is generally an input taxed supply of existing residential premises, with no GST on the sale and, importantly, a clawback of credits you claimed on the build. For a build-to-rent developer this five-year point is not trivia; it changes whether your eventual exit carries GST and whether the construction credits were ever really yours to keep.
Off-the-plan sales follow the same logic. When you sell a home off the plan, you are selling new residential premises, and on settlement the price includes GST. If a buyer on-sells their contractual right before settlement, that on-sale can itself be an enterprise that drags the buyer into GST.
What about commercial property?
Commercial property sales are generally taxable, full stop, with none of the input taxed shelter that residential rent gets. If you sell an office, a shop or an industrial unit and you are registered, the Australian Taxation Office (ATO) treats the sale as taxable, so you charge GST on the sale and claim credits on the costs. Commercial rent is also taxable, which is the mirror image of residential rent: you charge GST on the lease and you recover the GST on outgoings and fit-out.
The wrinkle for developers is mixed-use. A ground-floor retail podium under residential apartments is a mixed supply, and the GST has to be apportioned between the commercial and residential parts. Margin scheme eligibility is set separately for each by how that land was acquired, not by whether the lot is residential or commercial, so mixed schemes need the GST modelled component by component rather than as a single blended assumption.
What GST credits can you claim on development costs?
You can generally claim the GST on any cost you incur to make a taxable sale, which for a build-to-sell developer means the land (if bought with GST from a registered seller), consultants, council and authority charges, construction, and sales and marketing. These input tax credits are the reason a new residential development is not simply 10% worse off on every invoice. The Australian Taxation Office (ATO) rules on claiming credits when purchasing property let you claim where you are registered, hold a valid tax invoice, and are buying for a creditable purpose.
The more useful list is where you cannot claim, because each of these is a place a model built on “claim back all the GST” quietly overstates the recovery:
- You cannot claim a credit when the seller was not registered, because there was no GST in the price to recover. Buying development land from a private landowner is the common case.
- You cannot claim a credit when you buy existing residential premises, because that sale to you is input taxed.
- You cannot claim a credit when you buy under the margin scheme, because the margin scheme and input tax credits do not go together on the same acquisition.
- You cannot claim a credit when you construct new residential premises to rent rather than sell, including build-to-rent, because you are making an input taxed supply of residential accommodation.
- You cannot claim a credit when you buy as a GST-free going concern or GST-free farmland, because there was no GST charged to you.
Two housekeeping points protect the credits you are entitled to. You need a valid tax invoice, and a property sale contract is not usually a valid tax invoice on its own, so get the invoice. And there is a four-year time limit on claiming credits, running from the due date of the activity statement for the period the credit became claimable, so credits do not sit around indefinitely waiting to be picked up.
What is GST at settlement, and how does it hit your cashflow?
GST at settlement means the buyer of your new residential premises or potential residential land withholds the GST from the price and pays it straight to the Australian Taxation Office (ATO), instead of paying it to you to remit later. It has applied since 1 July 2018, and the transitional period for older contracts ended on 30 June 2020, so it is simply how new residential settlements work now. The measure came in through the Treasury Laws Amendment (2018 Measures No. 1) Act 2018, explained in Law Companion Ruling LCR 2018/4.
The amount the purchaser withholds, per the Australian Taxation Office (ATO) suppliers guide to GST at settlement, is generally one of three figures:
- one eleventh of the contract price on a fully taxable sale
- 7% of the contract price where the sale uses the margin scheme
- 10% of the GST-exclusive market value where the sale is to an associate for less than market value
On our four-townhouse example at $850,000 each, a buyer on a fully taxable sale withholds one eleventh of $850,000, which is $77,273, and pays it to the Australian Taxation Office (ATO) at settlement. If the sale runs under the margin scheme, the buyer withholds 7% of $850,000, which is $59,500. Either way, the money is routed to the Australian Taxation Office (ATO) and then credited to your GST property credit account, which you offset when you lodge.
Two obligations sit on you as the supplier. You must give the purchaser a written supplier notification before settlement stating whether they have a withholding obligation and, if they do, the amount and when to pay it. And you still report the sale on your own Business Activity Statement (BAS): the sale at label G1, the GST on the sale at label 1A, and your credits at label 1B. You do not put the withheld GST property credit at label 1B; it comes through the separate GST property credit account. Getting that wrong is a common cause of a return not reconciling.
The cashflow consequence is the part developers undermodel. Before 2018 a developer collected the full price at settlement and held the GST until the next Business Activity Statement (BAS), a short, useful piece of working capital. Now that GST never lands in your account; it is peeled off at settlement. A staged settlement program therefore releases less cash per settlement than the headline prices suggest, and a development cashflow model that ignores the withholding will show a peak funding position that is too shallow. Model the net-of-withholding proceeds at each settlement, not the gross.
How does the margin scheme change the numbers?
The margin scheme lets you calculate GST on the margin you added rather than on the full sale price, which on eligible stock can save real money. Instead of one eleventh of the sale price, you pay one eleventh of the difference between your sale price and what you originally paid for the land. The Australian Taxation Office (ATO) margin scheme guidance sets out the mechanics, and there is a dedicated guide to the GST margin scheme that works through eligibility and the calculation methods in full. This section is the summary a feasibility needs.
Back to the four townhouses. Standard method GST on the $3,400,000 of sales is $309,091. If the land, bought for $900,000, was eligible for the margin scheme, the margin is $3,400,000 less $900,000, which is $2,500,000, and the GST is one eleventh of that, which is $227,273. The margin scheme saves $81,818 on the same project. On a subdivision bought cheaply years ago and sold as finished lots, the saving scales with the gap between your cost base and your sale prices.
Three constraints keep the margin scheme honest, and each matters at feasibility stage:
- Eligibility is not automatic. You generally cannot use it if you bought the property through a fully taxable sale where the seller worked out their GST the normal way, and there are further limits tied to how you acquired it. The Australian Taxation Office (ATO) eligibility rules are the place to confirm before you assume the saving.
- It has to be agreed in writing. You and the buyer must agree in writing to use the margin scheme on or before settlement. Miss the paperwork and you lose the scheme on that sale.
- No double dipping. If you bought under the margin scheme you did not get an input tax credit on that purchase, and you cannot use the scheme and also claim a land credit on the same acquisition. The scheme trades the credit for the concessional calculation.
Because the margin scheme changes the GST on sales without touching your cost credits, it flows straight to profit on eligible deals, which is why it is worth testing as a scenario rather than assumed on or off. Feasly models the margin scheme on the margin itself rather than applying a flat GST assumption, so the benefit shows up in the net GST position and the profit line rather than being lost in a blended rate.
The developer’s GST trap: renting new stock before you sell
If you build to sell but rent the finished stock while you wait for a buyer, you trigger a change in creditable purpose, and you have to pay back some of the GST credits you already claimed. This is the trap that catches developers in a slow market, and it is worth understanding before you sign a lease on unsold stock.
The logic runs through the Australian Taxation Office (ATO) guidance on change in use of your property. While you intended to sell, your construction costs were for a taxable purpose, so you claimed full input tax credits. The moment you rent the home as residential accommodation, you are making an input taxed supply, so those costs are no longer wholly for a creditable purpose, and you make an increasing adjustment on your Business Activity Statement (BAS) to hand back a proportion of the credits. The Australian Taxation Office (ATO) uses the example of a developer, Bob, who builds six units to sell, sells four, and rents the last two: he must adjust the credits on the two he now rents. The adjustments run through Division 129 of the GST Act, and the detail sits in Goods and Services Tax Ruling GSTR 2009/4 and Goods and Services Tax Ruling GSTR 2000/24.
There is a narrow path through it. If you genuinely hold the stock for a dual purpose, renting it while still actively marketing it for sale, the property is treated as partly held for a creditable purpose, and the adjustment is smaller than a clean switch to renting. The Australian Taxation Office (ATO) is explicit that you need records, a listing agreement and marketing evidence, to show the sale intention is real and continuing. Quietly parking unsold stock on residential leases and dropping the sale campaign is the version that costs you the credits.
The reverse can also work in your favour. A developer who always intended to rent one unit and claimed no credit on it, then gets an offer too good to refuse and sells it while it is still new, makes a decreasing adjustment and recovers some of the credit not originally claimed. The lesson for a feasibility is that GST credits are not locked at the moment of construction; they follow what you actually do with the stock, so a hold-versus-sell decision has a GST tail, not only an income tax one.
Going concern and farmland: when a site sells GST-free
A sale can be GST-free rather than taxable when it is the sale of a going concern or the sale of eligible farmland, and for a developer that can be worth structuring towards. GST-free is the favourable bucket: no GST on the sale, but the seller still keeps their input tax credits. The buyer also funds no GST at settlement, which frees working capital and avoids financing a tax that only comes back later.
A going concern is broadly a sale where an operating enterprise is transferred as a working whole. The Australian Taxation Office (ATO) going concern rules require that the sale is for consideration, the buyer is registered or required to be registered, both parties agree in writing that the sale is of a going concern, and the seller supplies everything necessary for the continued operation of the enterprise and carries it on until the day of sale. A commercial building sold with its leases in place is the classic example, and it is a common structure when a developer sells a completed and leased commercial asset to an investor.
Farmland sold for a farming business can be GST-free under the Australian Taxation Office (ATO) farmland concession where a farming business has been carried on for at least the five years before the sale and the buyer intends to carry on a farming business. This one matters at the acquisition end for developers buying englobo farmland on the urban fringe. If you buy the land GST-free, you paid no GST and have no credit to claim, which then interacts with whether you can later use the margin scheme on the finished lots. It is a decision to make before you exchange, not after.
The catch across both is the change in creditable purpose already covered. Buy GST-free for one purpose and use the land for another, and the Australian Taxation Office (ATO) can require an adjustment, so the concession is only as clean as your actual use.
How should GST sit in your feasibility model?
GST belongs in a feasibility as its own tracked position, not as a rate smeared across revenue and costs. The cleanest approach is to hold every revenue and cost line on a consistent basis, decide whether you are working excluding or including GST, and then carry the net GST payable, being GST collected on sales less credits on costs, as a distinct line that hits cashflow at the right time.
Three modelling habits separate a model that holds up from one that flatters the deal:
- Revenue is ex-GST. Your Gross Realisation Value (GRV) should be net of the GST you will remit. Modelling on gross prices overstates the return by roughly one eleventh of sales.
- Costs are net of credits. The GST you will claim back is not a cost, so a cost base that ignores input tax credits overstates spend. The exception is any cost tied to an input taxed supply, such as build-to-rent stock, where the credit is not available and the GST is a genuine cost.
- Timing is a cashflow item. GST at settlement peels the tax off each sale as it settles, and credits come back on a Business Activity Statement (BAS) cycle. The lag between paying GST on construction and recovering it, and between settling and clearing the withholding, moves your peak funding, a dynamic worked through in the guide to funding GST through a development, so it belongs in the monthly development cashflow, not only the summary.
This is where a purpose-built feasibility tool earns its place over a spreadsheet: modelling the margin scheme on the actual margin rather than a flat assumption, so the net GST position and its cashflow timing carry through to the profit and the funding requirement. A tool like Feasly won’t calculate your stamp duty or lodge your Business Activity Statement (BAS); it models the GST that flows through the feasibility so the margin you see is after tax, not before it.
Does GST work differently in New Zealand?
Yes, and the differences are large enough that an Australian developer crossing the Tasman should not assume anything carries over. New Zealand’s GST rate is 15%, not 10%, there is no margin scheme, and there is no stamp duty at all. The headline saving on duty is real, but the GST rate is higher and the mechanics of land sales are different.
The mechanic that catches Australians is compulsory zero-rating. Under the Inland Revenue Department (IRD) rules on zero-rated land transactions, a land sale must be zero-rated at 0% GST, rather than taxed at 15%, when it is made by one registered person to another registered person, the buyer intends to use the land for making taxable supplies, and the buyer does not intend to use it as a principal place of residence. All the conditions have to be met at settlement, and if they are, the parties cannot choose to charge 15% instead. The detail sits in the Inland Revenue Department (IRD) interpretation statement IS 17/08 on compulsory zero-rating of land.
Compulsory zero-rating was introduced to stop a fraud pattern where a buyer claimed a GST credit on a purchase the seller never remitted, so by zero-rating the transaction no GST changes hands between developer and developer. For your cashflow it is a positive: buy a development site from another registered party and you fund no GST on the land, rather than paying it and waiting for the credit. Going concern sales between registered persons are zero-rated on the same logic. Residential rent is still an exempt supply in New Zealand, the equivalent of Australia’s input taxed treatment, so the build-to-rent credit problem exists there too. New Zealand’s other property tax settings, including the bright-line test on resale, sit outside GST and are covered in the New Zealand bright-line test guide.
GST questions property developers ask
Do I charge GST on residential rent? No. Residential rent is an input taxed supply, so you do not charge GST on the rent and you cannot claim credits on the costs of leasing the property. Commercial rent is the opposite: taxable, with credits available.
Can I claim the GST on the land I buy? Only if the seller was registered and charged GST, you are buying for a creditable purpose, and you are not using the margin scheme or buying GST-free. Buying development land from a private, unregistered seller means there is no GST in the price to claim.
Is GST payable when I sell a house I built to rent and held for years? If you rented it as residential accommodation for at least five continuous years without actively marketing it for sale, it is no longer new residential premises, so the sale is generally input taxed with no GST. Sell inside five years and the sale is taxable.
How much GST does the buyer withhold at settlement? Generally one eleventh of the price on a fully taxable sale, or 7% of the price if the sale uses the margin scheme. The buyer pays it to the Australian Taxation Office (ATO), and it is credited to your GST property credit account.
Does the margin scheme reduce my income tax as well? No. The margin scheme reduces GST on the sale only. How your development profit is taxed as income is a separate question from GST, and it usually turns on whether the profit is taxed as ordinary income or on capital account.
Do I need to register if I only do one project? Probably yes. A one-off development is generally an enterprise, and a single project almost always exceeds the $75,000 turnover threshold, so registration is usually required. The Australian Taxation Office (ATO) GST property decision tool can help you check.
The practical takeaway
GST is a margin item, not an afterthought. On a build-to-sell development it takes one eleventh off your sales, hands back the tax on your costs, and settles the difference through a withholding that hits your cashflow at each settlement. The levers that move real money are whether your sale is taxable or input taxed, whether the margin scheme is available, whether you can structure an acquisition or a commercial sale as GST-free, and whether you keep the credits by selling rather than renting new stock. Each of those is a decision best made before you exchange, priced into the feasibility, and confirmed against a current primary source and your own adviser rather than a rule of thumb. Model the net position, not the gross, and the margin you are looking at is the one you will actually keep.
This guide is general information for property developers, not tax advice. GST outcomes turn on the specific facts of your project, and the rates, thresholds and rules cited are current at the time of writing but change. Confirm the position with the Australian Taxation Office (ATO), the Inland Revenue Department (IRD) or a qualified adviser before acting.