Hi everyone, I have a potential JV opportunity with 2 landowners who each owns 1 lot of similar size back to back with each other. Both landowners own their respective lot under their personal names. They have obtained subdivision conditional approval for create 3 lots from the original 2 and have asked me to finish off the subdivision as part of the JV. Both lots are their PPOR, if they go through with this subdivision would it be a CGT event if: They sold 3 lots of vacant land? They sold 2 lots of vacant land and 1 lot with the original house? Would appreciate any clarification!
CGT may be payable. revenue may be payable interaction of s6 with CGT provisions to be looked at need to look at original landholdings and intention on acquisition. what type of works will be done to the lots ? does it move it from capital to profit from isolated transaction ? was it a profit from an isolated transaction at the beginning. its complex consider GST implications as well
They may or may not have a CGT event (or a revenue event) and even both. Their CGT event may or may not be exempt at a point in time. But not for the complete sale. You could have a revenue event for anything you earn as you have no CGT interest - Potentially a share of the isolated profit making venture. But its also possible a event is triggered based on the JV agreement. If so what value is to be used for that CGT event and what is its timing ? The ATO recent whitepaper "Draft Property and Construction Website Guidance" describes a range of situations that may or may not be of any guidance but helps to demonstrate some of the shifting approaches the ATO now consider and that nothing is black & white. Supply of land is a taxable supply for GST - and if its an enterprise then GST applies. The JV may be that enterprise ?? Margin scheme or not ? Danger with not adopting the enterprise view is that if its later found incorrect then the margin scheme cant be used after the event. In its simplest form I have doubts that the SALE of the land is a CGT event. And its also possible that the sale of the 1 house and land isnt a CGT event either. Complex.
Not quite true with the margin scheme being used after the event. Commissioners discretion can be sought. We have a gst specialist working on one at present for a client. His success rate so far. 100% for the ones he has lodged PS LA 2005/15 Legal Database
But the concerns can be avoided by tax planning prior to sale. Generally speaking a contract that nominates that the MS is used requires no costly GST specialist and request of the Commissioner. And I have always liked this PSLA for its application to "injustice"..wish other rulings etc were akin to that same view. That position however is useful when taxpayers fail to get advance tax planning and advice. And we often see that the MS issue is one of several problems they face. eg They failed to retain tax invoices that comply with the $1,000+ rules and so on. Record keeping and more. Contractor payment reporting even....Have also seen cases where lawyers / conveyancer mistakenly advise that use of the MS isnt available when it is. So the drafted contract is flawed. The PSLA does help that. Can you share your referral ? I recently had a new client unsuccessful with their adviser request - For seemingly valid reasons. Maybe your referral is better than theirs ?? Email me if you wish.
