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Developers and GST Again

Discussion in 'Accounting & Tax' started by MTR, 5th Apr, 2016.

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  1. MTR

    MTR Well-Known Member Premium Member

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    Interesting conversation with my accountant today stating that some of his developer are submitting nil returns for GST, and are then amended at a later date.

    He does not recommend this, however I suppose some developers may have cash flow issues or using funds for other purchases.

    MTR:)
     
  2. Blacky

    Blacky Well-Known Member

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    If the financed it correctly they could finance the GST.
     
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  3. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Does he mean claiming no GST during the project at BAS time then working it out when it's sold?
    I do that for mine, as it's not always apparent what will be held and what will be sold. So I claim 0 GST on BAS then claim it all at once together with margin scheme at tax time.
    For the Blackminster JV though it's a definite sale so we (aka @Blacky) is claiming the GST during the project and then we'll margin scheme it when all sold.
     
  4. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    I would agree that most devs do NOT claim GST until the correct time. The accountants advice should be understood. I often encourage client to defer the claim to offset the GSTon the sale. Thats not always the case but claiming GSTwithout a sale contract can be issue and lead to penalties.
     
  5. Blacky

    Blacky Well-Known Member

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    I would agree for 'small' developers this would hold true.
    However as soon as you start developing as a business, and I think some on the forum are at this level, structuring and financing at the correct 'level' would be benificial.

    Blacky.
     
  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    I class a large developer as someone doing 20+ builds a year. They tend to be compliant through experience and playing games between a few properties is trivial in their chase for profit. Timing of sales between one financial year and another can be important.

    Interesting some make the aweful mistake of being registered for GST on an accruals basis just because their expected sales are $2m + However, almost all small developers dont use accrual accounting records and still can use the cash basis which allows GST to be paid on settlement rather than contract. To do that you usually have to call the ATO as they do default to accrual when projected t/over is $2m+ on registration.

    You may be surprised how many experienced and capable small devs seek advice after they are detected with a ATO concern. Typically :
    - Costs that are private included in dev costs (A Harley and a HiLux was the best so far)
    - Poor record management
    - Claiming GST before they should
    - Claiming 100% of GST when they plan to sell less
    - Apportioning to weigh the sales and leave a low cost base for the keeps
    - Incorrect use of the margin scheme or calculations
    - Third party payments (unreg kickbacks) and unreported construction payments concerns
     
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  7. Rob G

    Rob G Well-Known Member

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    They could initially be providing residential accommodation prior to selling within the 5 years and then having an increasing adjustment.

    They could be engaged in long term construction contracts with progress payments.

    There could be numerous other reasons not disclosed in your original conversation.
     
  8. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    +1 Rob.

    Even a issue such as the GST registration basis can influence such a statement eg cash / accruals. In the world of Bldg and Construct there are many who embellish and a statement that "there was no GST" may not reflect that they made no profit over time (2-3 years) and when the margin scheme was used it minimised the tax legally. Maybe they just referred to one of those years ? ie sold 4 or 20 lots but claimed GST input tax on all 20.

    I have seen some take view on the margin scheme which ATO refer to as the alternate view (para 50 of GSTR 2006/) . They add in loads of land subdiv, prep and dev costs to the land and inflate the margin calc in error. Para 52 says the ATO doesnt accept this view but I have seen plenty of adviser say its OK.

    Rob - Can a adjustment event even occur after 4 years ? Normally an adjustment of magnitude must be amended and not adjusted in the present quarter and a BAS cant be amended or backdated after four years. Thats my understanding. eg : If ITC arent claimed on build then you cant adjust them in year 5 and cant amend year one. As a wise soul on the forum whats your view ?
     
  9. MTR

    MTR Well-Known Member Premium Member

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    No, none of these. What they are doing is providing nil returns, developers pay GST each quarter to improve immediate cash flow and then adjusting at a much later date.

    I personally would not do this, but clearly some developers do