GST and Property Development — Why It's Different
GST treatment of property is one of the most complex areas of Australian tax law. The standard rule — 10% GST on sales — does not apply straightforwardly to property. Whether GST is payable, on what amount, and who pays it depends on:
- Whether the property is new residential, established residential, or commercial
- Whether the margin scheme applies (reducing GST to 1/11th of margin, not 1/11th of sale price)
- Whether the buyer is registered for GST (commercial property going concern)
- Whether the 75% rule or turnover method is used for input tax credit apportionment
- Whether buyer withholding applies (new residential property from 1 July 2018)
The Indian CA team handles the bookkeeping — coding transactions correctly in Xero, preparing BAS labels, and tracking per-project GST positions — while your Australian tax agent makes the legal determinations. The two work together: tax agent advises, Indian CA team implements.
GST Margin Scheme — How It Works in the Books
The margin scheme applies when a property developer sells new residential property and the original acquisition was either GST-free (e.g. from a non-registered vendor) or at cost price. Instead of paying GST on the full sale price, GST is calculated on the margin:
| Element | Standard GST Method | Margin Scheme |
|---|---|---|
| Sale price | A$1,200,000 | A$1,200,000 |
| Acquisition cost | A$600,000 | A$600,000 |
| Construction cost | A$400,000 | A$400,000 |
| GST base | A$1,200,000 (full sale) | A$200,000 (margin only) |
| GST payable (1/11th) | A$109,091 | A$18,182 |
| Input tax credits claimed | Full construction GST claimable | Construction GST NOT claimable |
| Net GST position | Depends on credits claimed | Lower gross liability, no ITC on construction |
The Indian CA team sets up the margin scheme calculation as a Xero tracking note, codes the settlement correctly, and ensures BAS labels G1 and 1A reflect the margin scheme amount — not the full sale price.
Buyer PAYG Withholding at Settlement (Since 1 July 2018)
Since 1 July 2018, buyers of new residential property must withhold 1/11th of the contract price (or the margin scheme amount if notified) and pay it directly to the ATO at settlement — rather than the full price going to the developer. The developer then claims this as a credit on their BAS.
The Indian CA team tracks this as follows:
- Before settlement: Issue the withholding notification to the buyer (confirming whether margin scheme applies and the withholding rate — standard 1/11th or reduced rate if margin scheme)
- At settlement: Code settlement proceeds net of withheld amount in Xero. Record withheld amount as a separate GST credit receivable from ATO.
- BAS lodgement: Include withholding credits (W4) on the activity statement to offset GST payable
- Monthly reconciliation: Track all projects — expected settlement dates, withholding amounts withheld, credits received from ATO
Project Cost Tracking — The Per-Project Account Structure
Each development project needs its own cost tracking so you can see per-project profitability, compare actual vs budget, and provide project-level accounts to your finance team, bank, or investors. The Indian CA team sets this up in Xero using tracking categories:
| Cost Category | Examples | GST Treatment |
|---|---|---|
| Land acquisition | Purchase price, stamp duty, legal fees | Purchase: generally no GST. Duty/legal: some GST |
| Professional fees | Architect, planner, engineer, surveyor | Taxable — claim input tax credit |
| Construction — head contract | Builder progress payments | Taxable — claim input tax credit (if not margin scheme) |
| Construction — subcontractors | Electrician, plumber, concreter | Taxable — check ABN and GST registration of each |
| Finance costs | Interest, bank fees, establishment | Input-taxed — no GST credit |
| Sales and marketing | Agent commissions, advertising | Taxable — claim input tax credit |
| Holding costs | Council rates, water, insurance during build | Varies — insurance input-taxed, others taxable |
Progress Payment Management
Construction contracts typically run on fixed-schedule progress payments — slab, frame, lock-up, fit-out, practical completion. The Indian CA team:
- Tracks the progress payment schedule against the building contract
- Matches builder invoices to scheduled milestones before processing for payment
- Flags any variations (builder change orders) for approval before coding as additional project cost
- Maintains a cost-to-complete schedule showing remaining contract commitments
- Produces a monthly project cost report: spent to date vs budget, committed but not invoiced, cost to complete, forecast profit margin
SPV Entity Management — Multiple Projects, Multiple Entities
Experienced property developers typically run each development in a separate special purpose vehicle (SPV) — a separate company or trust — for asset protection and capital management. The Indian CA team can manage accounts across multiple SPV entities simultaneously:
- Separate Xero file or separate tracking category per SPV/project
- Intercompany loans (equity injected from the holding entity) tracked and reconciled
- Management fees from holding entity to SPVs coded correctly
- Distribution of profits from SPV to trust/company recorded at completion
- Consolidated overview available for the holding entity
Having a CA firm team (rather than one bookkeeper) handle multi-entity work ensures no project falls behind — each entity is managed systematically, not prioritised by whoever is busiest.
Written by Sharma Jyoti, CA (ICAI) — Founder, Sharma Jyoti and Co. We are an ICAI-registered Chartered Accountant firm providing outsourced bookkeeping and accounting services to Australian, US, UK and Canadian businesses. Learn more about our firm →
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