Hi all, A GST question for the tax experts.. How is GST treated if a site with an existing dwelling is sold (at or near original acquisition price) and a new dwelling built and sub-divided on land at the rear is also sold? All sales contracts include the margin scheme. Thanks Al
The margin scheme cant be used on the existing dwelling... Its not subject to GST as its input taxed. IOt not a new residential dwelling unless substantial work was done to that property (ie gut to shell and renovate) Apportionment of land value will require a land valuer to assist...Two portions..Old house + land and new land. Can the margin scheme be used on the new build ??(Possible)...What do the sale contracts say ? The existing dwelling contract CANNOT nominate the margin scheme if its input taxed...The contract may be defective....minor issue but may indicate legal process wasnt diligent The owner/s have a ABN and are reg for GST ? I have seen people use the margin scheme and not be. This also invalidates the margin scheme. All this suggests a tax plan for the site hasnt been addressed. What else has been missed...GST on build ? Which cost are eligible and which are not ? Records ??
@Paul@PFI , thanks for the detailed response. So far only the existing (cosmetically renovated) dwelling is getting ready to hit the market however that's a good point regarding GST margin scheme for this property. This element appears to have been missed by our solicitor/accountant and can be corrected. All owners and entities are registered for GST/ABN. Sounds like a valuer will need to do a valuation on the rear block to create a 'land value'. All GST for the new build will be claimed at the end of the build.
Interesting issue. If the contract was for two properties and the contract for sale said it was a taxable supply and then you find out one was input taxed you could end up paying full GST on a supply that was ordinarily input taxed. That is a major error.
There is a specific way to deal with determining the land. The original block must be apportioned by a valuer into two elements - One being old house and land and other being land. They should do two reports - One based on the original costs and other based on market value. Your tax advice will determine which to use. Maybe both You cant value the land and just deduct it from the total. There may be need for tax advice on the valuation methodology. Tax laws permits YOU to choose the best use of the land. That could be a strategy to max out the CGT event so a discount occurs IF thats even permitted. The existing house may actually be sold on a revenue basis as well. Tax advice would set that straight..
