Duplex GST Implication Owner Occupied/Sale of Investment

Discussion in 'Accounting & Tax' started by daves88, 16th Mar, 2020.

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  1. daves88

    daves88 Active Member

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    Hi guys,

    I've done a few searches in regards to this question specifically and cant seem to get a solid one.

    Around 18 months ago i purchased a house, knocked down and built a duplex with the intention of owner occupying one side and selling the other. I ran this past my accountant at the time who advised me to develop under my personal name and all will be well.

    Its now come to the stage where i am selling off the investment side and my solicitor has asked if GST will be applicable, after speaking to my accountant he believes that it will be.

    I phoned the ATO to get some further clarification however after running my scenario by them they advised that i'm not classified as an "enterprise" therefore there shouldn't be any GST implications. (My solicitor did however say to take what they say with a grain of salt)

    Just wondering if someone could provide some feedback?
     
  2. Mike A

    Mike A Accountant Business Member

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    Looks like the sale of a taxable supply in the course or furtherance of an enterprise

    A profit from an isolates transaction can be in the course of furtherance of an enterprise. What terrible advice from the ato.

    Might post this on linkedin as i have a number of assistant commissioners on my contacts who will be interested reading this

    Margin scheme might be able to be used
     
  3. Ross Forrester

    Ross Forrester Well-Known Member

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    You have sought the opinions of two professional advisors who have both come back and said the same thing.

    It seems like you have clarity which is a great outcome.
     
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  4. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    A enterprise is broadly addressed in a very vague and open ended tax ruling MT 2006/1. In short a enterprise is a sequence of planned outcomes which may or may not give rise to a profit or at the very least have that intention.

    Based on the limited information it seems that there was an intention to develop and a duplex so that part of it would be sold. As Mike describes that is likely a isolated profit making intention. There is no requirement for repetition as is a test of a business for example. Once will be enough and the key event that starts it may have been the planning evidenced by the advice given concerning struture. The enterprise seems evident to me from the outset and its not like you (example) wanted to use the other half for your parents and things have changed so you are seeking to sell.

    Our developer toolkit explains in details many of the issues
     

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  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    If it is not an enterprise there may be no GST. Go for a paid for 3rd opinion.
     
  6. daves88

    daves88 Active Member

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    Thanks for the feedback guys.

    The term "enterprise" is definitely vague.

    Are you seeing something a little differently Terry? I'd be more than happy to pay for 3rd opinion.

    Cheers
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    See the tax ruling on the ato's interpretation of the word enterprise
     
  8. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    An enterprise is a concept and not defined as such with any statutory test. The key element that should never be ignored is original intent. Isolated profit making is very old tax law long before the issues of CGT and GST. And enterprise adopts a similar but different approach. The systematic and progressive plans and intentions may be part of the enterprise at its outset. If that was as seemed described it may be a waste of $$$ to seek a third opinion. But I have seen instances where on discussion and personal advice all the facts become known and its not as clear cut.

    Generally speaking where a duplex is sold soon after completion all of the facts need to be determined. I have seen people build a duplex intended for retention in the long term and marriage failure etc imapcts that. And family death, relocation and more as factors in a sale. Less focus should be given to the reasons for sale however and more to the intention at acquisition. Case laws concerning this are quite relavent.

    August v Commissioner of Taxation [2013] FCAFC 85 is a interesting case where a sale LONG after a property was acquired was determined to be on revenue account. Hence a sale not a CGT event. A revenue event. And an enterprise apart from that of the commerial property letting. The shopping centre was acquired with intention to redevelop and it never occurred. The intention set the basis for the end tax treatment.
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    The law contemplates that a sale soon after completion could still be on capital account as is evidence with the 3 month rule to claim the main residence exemption after construction.

    I think it wouldn't hurt for a second opinion ( but not from me )
     
  10. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    But the asset being disposed isnt on capital account and cannot be a "main residence" for tax purposes even it was a home if it was constructed for isolated profit making purposes. TD 92/135. The 3 month rule for disposal of a newly constructed or substantially renovated main residence would not be a consideration if isolated profit making intentions are applicable. Each element of the build needs to consider its application of capital and revenue account and intentions. Even if on one or more titles.

    Given the ATO views in the draft property and construction website guidance the most relevant opinion may be that of the Commissioner after all facts and cirumstances are considered. If I was asked to give opinion on a matter like this I would likely recommend the advice is subject to a binding private ruling. I have encountered way too many taxpayers "coached" in shopping tax advice that seeks to fit the desired outcome rather than based on intent and fact. I would seek to avoid reckless advice.

    In the worst case if A sells the duplex that was intended to be rented and then say 4 months later sells the main residence it may be argued by the Commissioner that neither were CGT assets, both are subject to GST and ordinary income.
     
  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Not enough details either way but it could be on capital account so further advice should be sought.
     
  12. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Yes not all tax advisers are property savvy too. I have seen some given poor advice who think they are fine until their solicitor raises a eyebrow re contracts