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Granny flat construction payment receipts

Discussion in 'Accounting & Tax' started by Harry Nguyen, 18th Feb, 2016.

  1. Harry Nguyen

    Harry Nguyen Member

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    hi all,

    I read for 2 hours through Google and not able to find answer. I know PC would be the best venue.

    I have recently contracted a builder for granny flat. all done with payment and all.

    when I asked for invoice, he said that the signed contract between us would be enough evidence for tax purpose.

    The contract is very details with amounts, name, address, ABN etc...

    could anyone advise me whether that is enough? OR I should press for invoice?

    The total cost is more than $100K (including GST). I transfer payments through Internet Banking.

    Thanks in advance.
     
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    I would want a Tax invoice.............

    Im not an accountant, but a contract is intent, its not spent money

    ta

    rolf
     
  3. Biz

    Biz Well-Known Member

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    I'm with Rolf, get an invoice.

    If you hold their payment I wonder how long it would take them to produce one? :p
     
  4. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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  5. Harry Nguyen

    Harry Nguyen Member

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    Thanks for the reply. wow you all wake up pretty early (or in Rolf case pretty late)
     
  6. Biz

    Biz Well-Known Member

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    All the good deals happen in the early hours ;)
     
  7. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Given that the supply is greater than $75 and the provider would be obliged to be registered for GST (based on turnover) you are able to request a tax invoice be issued. The GST law includes a provision that makes it an offence for one NOT to be provided when requested within 28 days. If that request fails you may escalate to the ATO. They investigate most / all such claims and would then anon review records to determine if all income is being reported.

    It is possible that the contract contains a clause that says that the contract is a tax invoice, when paid. However due to the issue of variation to pricing I would doubt that it complies. Fixed price quotations and many product order forms contain similar provisions but this is easier with fixed costs.
     
  8. Rob G

    Rob G Well-Known Member

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    1) Is the OP related to GST?

    It is entirely possible for a contract for a prospective supply to be a valid tax invoice. Any variation would be an adjustment.

    However it must be clearly stated somewhere that it is or will be a tax invoice, along with disclosure of the GST amount.

    If the entire supply is taxable then all that is needed is a statement "price includes GST".

    If it is a mixed supply then each transaction must be identified.

    However, if you are building solely for earning input taxed residential rental income then no GST input tax credit is claimable.

    2) Is the OP related to income tax?

    You do not need a GST compliant tax invoice if you are not entitled to claim an input tax credit. Your income tax deduction or CGT cost base is simply the total price paid.

    However, if you sell your new residential premises within 5 years then you may be required to remit GST on the sale if connected with an enterprise. Then you will be entitled to an adjustment for the GST you paid in the purchase price and so holding a valid tax invoice would be highly recommended.

    In fact, if for any reason you end up being required to remit GST on disposal (such as using the land as trading stock in a development) within 10 years then a GST adjustment may be available.

    Conclusion: Get advice whether the contract may be treated as a GST tax invoice.
     
    Last edited: 19th Feb, 2016
  9. Scott No Mates

    Scott No Mates Well-Known Member

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    What if the OP sells the property within 5 years and wants to use the margin scheme?
     
  10. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    All relevant points but reality is asking for the tax invoice will be easier than seeking legal or tax advice on validity of a contract as a tax invoice. A taxpayer can ask the Commissioner for an opinion on if a contract is a tax invoice - PSLA 2004/11 to satisfy s29-70(1B) (s29-70 ANTSA 1999) too.

    The GST issues not as much of an issue as the substantiation issues for CGT and eligible capital allowance deduction expenditure etc I suspect. For those purposes the contract and proof of payment may well be more than sufficient. The key issue with s29-70 really only affects entitlement to claim a input tax credit. Being able to claim GST isn't a condition for the supplier to refuse issue of a tax invoice under s29-70(2). I don't believe that the supplier has right to refuse to issue a tax invoice where a request is made. This could include instances where a tax invoice had been issued but lost for example.

    Contract based tax invoices often fail items one three & five of the requirements unless its very clear in the contract that details all supplies etc. Issuing tax invoices | Australian Taxation Office Construction contracts where variations apply may be a tax invoice for the primary supply but when variations occur a adjustment note or change may render the contact no longer suitable at all as a tax invoice. A former business I was involved with had this with Telstra work orders.
     
  11. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Its a GF issue. That's not applicable. Margin scheme only applies to land.

    I'm not sure how a GF may trigger new residential premises in any event. In order to trigger GST on new residential premises the contract would have to be for "real property". I'm not sure a GF is real property based on ATO view that sale can only apply to full and complete ownership on land for consideration. (GSTR 2003/3) yet Para 94-95 adopts a view where there is more than one "building" which may pose the issue under the 5 years
     
    Last edited: 19th Feb, 2016
  12. Rob G

    Rob G Well-Known Member

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    Margin scheme may be an option.

    However, if the value of the house and land has increased by a very large percentage compared with the original value then it is not so advantageous.
     
  13. Rob G

    Rob G Well-Known Member

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    I was referring to a GF as a permanent fixture to land as opposed to a demountable prefab.
     
  14. Harry Nguyen

    Harry Nguyen Member

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    The website above is very helpful. Thanks Paul.

    The builder has agreed to provide me tax invoices after I send him the website.