GST Mistakes Property & Construction Businesses Should Avoid

If you run a building, contracting, or property business in Perth, GST is one of the most complex tax obligations you'll face. Unlike standard retail or service businesses, property and construction transactions come with their own set of rules and the cost of getting them wrong can be significant. Here are the most common GST mistakes we see in the industry, and how to avoid them.

1. Assuming All Property Sales Are GST-Free

One of the most common misconceptions is that all property transactions are exempt from GST. In reality, the rules depend on the type of property and its history.

New residential premises and commercial property are generally subject to GST. However, the sale of an existing residential property - one that has been previously sold as a residential dwelling is typically input-taxed, meaning no GST is charged and input tax credits cannot be claimed on related costs.

Where businesses go wrong is misclassifying a property. If you substantially renovate a property, it may be treated as "new residential premises" again, which triggers GST obligations even if you assumed the sale was exempt.

What to do: Before listing any property for sale, confirm its GST classification with your accountant. This single step can save you from an unexpected tax bill at settlement.

2. Not Registering for GST When Required

If your property or construction activity generates or is expected to generate annual turnover of $75,000 or more, you are required to register for GST. Many small operators, particularly those working on their first project, delay registration or assume it doesn't apply to them.

Failing to register on time means you may be liable to remit GST to the ATO even if you haven't collected it from your client or buyer. This is a real cash flow risk that catches many businesses off guard.

What to do: Register for GST before your first taxable transaction, not after. If you're unsure whether your activity reaches the threshold, speak with an accountant early in the planning stage.

3. Incorrectly Claiming GST Credits on Input-Taxed Supplies

If you're selling a property that is input-taxed such as an existing residential dwelling being rented out, you cannot claim GST credits on the associated costs, even if those costs include GST.

Many operators claim input tax credits on construction costs, professional fees, and materials without checking whether the end use of the property qualifies. This results in overclaimed GST credits, which the ATO will recover often with interest and penalties.

What to do: Keep clear records of whether each property is intended for taxable sale or input-taxed use. Work with your accountant to apportion GST credits correctly where a property has mixed use.

4. Missing the Margin Scheme Election

The margin scheme is a legitimate way to reduce the amount of GST payable on a property sale. Instead of paying GST on the full sale price, you pay GST only on the margin the difference between the sale price and what you originally paid for the property.

The catch? You must elect to apply the margin scheme before the sale contract is signed. Miss that window and you lose the option entirely even if it would have saved you tens of thousands of dollars.

What to do: If you acquired the property before it was subject to GST, or under certain other conditions, discuss the margin scheme with your accountant at the start of the project, not at settlement.

5. Getting the GST Withholding Rules Wrong

Buyers of new residential premises and new subdivisions are required to withhold a portion of the purchase price and pay it directly to the ATO at settlement. As the vendor, you are required to notify the buyer in writing about whether the withholding rules apply.

Failing to provide this notice or providing incorrect information exposes you to penalties under tax law, regardless of whether the GST itself is eventually paid correctly.

What to do: Include GST withholding notifications in your standard contract process. Your accountant and conveyancer should work together to ensure the correct amounts are withheld and the ATO is notified on time.

Work With an Accountant Who Knows Property & Construction

GST in property and construction is not a set-and-forget obligation. The rules interact with your contract structure, financing arrangements and project timeline in ways that require ongoing attention.

At Gordon Du & Associates, we work with builders, contractors, and property businesses across Australia to manage GST obligations, BAS lodgements and construction accounting from project start to settlement.

Book a free consultation to review your current GST position and identify any risks before they become costly.

Disclaimer: This post contains general information only and does not constitute specific tax or financial advice. Please consult a registered tax agent regarding your specific circumstances.

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• Learn more about our Accounting Services for Property & Construction Businesses.

• Read our latest update on Australia's Property Withholding Rules - what's changing and what it means for your business.