Join Australia's most dynamic and respected property investment community

API Magazine - Article on Splitters - GST on land sale.

Discussion in 'Accounting & Tax' started by WilliamB, 2nd Apr, 2016.

  1. WilliamB

    WilliamB Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    114
    Location:
    BRISBANE
    Hi gang,

    Just reading an article in API about a fellow that bought a splitter, demoed the house, then sold two blocks of land for a profit. From what he has mentioned, he definitely undertook this with the intention of making a profit. From what I understand he should most definitely be paying GST on the sale of the blocks, however in the article, it states he paid Nil GST.

    Is he asking for trouble firstly by not paying GST, then admitting it in a magazine that the ATO would most definitely review?

    I guess a better way to put it, is there any scenario (where it would clearly be categorised as operating a business, with the intention of making a profit, with turnover of well over 75k), where sale of land would avoid GST?

    In my understanding this is not possible, but perhaps there is a way?

    Cheers,
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

    Joined:
    13th Jun, 2015
    Posts:
    5,576
    Location:
    Adelaide, SA
    Maybe he was using margin scheme and made 0 profit? :p
     
  3. datto

    datto Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    1,390
    Location:
    Mt Druuiitt
    See if we can wake up some Sydney accountant posters and get their opinion.
     
  4. WilliamB

    WilliamB Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    114
    Location:
    BRISBANE
    Hahaha.

    DT. Fortunately for him he made around a 9% return in 3 or so months which is actually pretty decent.

    I'd be interested if he somehow found a loophole or strategy that allowed him to weasel his way out of it legally, or if someone should be telling him to wait for a call from the ATO hahah.
     
  5. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,358
    Location:
    Sydney
    I cant speak for the person but it seems either it was low value land or that the GST payable on the land sale was offset by GST on the costs to subdivide. Its quite likely that occurred. If so its likely he made no profit. Or made a mistake in how he determined GST.

    The person in the article doesn't have to operate a business. Just have an intention to profit and the nature of how he undertook the land activities appears to be a enterprise.

    Its always amazing how people admit to somethings in a published article.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,970
    Location:
    Sydney
    I don't read these magazines, but Maybe he was not registered for GST and it was sold sold on capital account.
     
  7. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,358
    Location:
    Sydney
    Based on activity description that would be a concern. Buy, demo, subdiv, sell in three months. Then tell API how much profit you made ?
     
  8. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

    Joined:
    14th Jun, 2015
    Posts:
    2,097
    Location:
    Sydney & Adelaide
    Then be awarded investor of the year!
     
    D.T., Eric Wu and MTR like this.
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,970
    Location:
    Sydney
    Julia, in another thread, posted about PBR 1012730145598.

    See RBA Content | Australian Taxation Office

    This person sold land with no GST because what they were doing didn't amount to an 'enterprise' as the sale was an isolated transaction and merely the realisation of a capital asset.
     
  10. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    5,549
    Location:
    Sydney or NSW or Australia
    They don’t qualify - this is development or at best speculation not investment per se.

    Still qualifies for bragging rights.
     
  11. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,345
    Location:
    Perth, Melbourne, USA
    LOL...
    Its not that hard then, just lose money and then those on the judging panel have something in common, they too are losing money
     
    DaveM likes this.
  12. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,345
    Location:
    Perth, Melbourne, USA
    I did this 12 months ago and I paid GST margin scheme, I don't understand how you could not pay it unless not registered and then that will open another can of worms, I guess.
     
  13. D.T.

    D.T. Adelaide Property Manager Business Member

    Joined:
    13th Jun, 2015
    Posts:
    5,576
    Location:
    Adelaide, SA
    Then what do you class the 2012 winner?
     
  14. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,345
    Location:
    Perth, Melbourne, USA
    ..... and buying in mining towns is not speculating???, let me buy a bucket load, one of the judges for another investor magazine......Helen K-C guru extraordinaire has something like 17-18 in this area (Moranbah)....
     
  15. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    5,549
    Location:
    Sydney or NSW or Australia
    The only API magazine that I read is the Australian Property Institute.
     
  16. WilliamB

    WilliamB Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    114
    Location:
    BRISBANE
    I should clarify, he states he made a 65k profit by his accounts. Just begging for trouble hahahah.
     
  17. dabbler

    dabbler Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,668
    Location:
    Sid en e - olympic city
    Only to lose your crown later as seems to be a poison chalice for many......
     
  18. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,345
    Location:
    Perth, Melbourne, USA
    I think generally speaking developers seem to target 20%+ gross on projects .

    If he is making $65K gross then it wont too hard to work out, deduct selling costs, GST (margin scheme), tax @ 30%... it also comes down to timeframe, ROI.
     
  19. WilliamB

    WilliamB Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    114
    Location:
    BRISBANE
    Hi MTR,

    I calculated about 9% ROI pre tax (including affects of MS) using my model using his costs (assuming he should have paid GST) etc. I think this is pretty fair considering very low risk, 3 months return etc.

    With splitters, 20% is often not as easy to achieve, however less risk, smaller timeframe etc.

    Anyways, my point was he DEFINITELY made cash, and is stating openly on a magazine (that I know for a fact the ATO reads) that he didn't pay GST.

    Good luck to him!
     
    Kate Moloney likes this.
  20. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,970
    Location:
    Sydney
    perhaps he wasn't required to pay GST?