GST of sell of 2 newly build house under discretionary trust

Hi guys expert on trust accounting and law, please guide us towards the right direction.

We have a company trust (discretionary type). We bought a land with DA approved for subdivision, build two detached houses. Now its almost complete and getting ready for sell soon.

We know the new GST rules have come in and we will need to pay GST on the sell price on general rule.

My question is:
-1. GST on sell of newly build house: does this differ in any way when the property is under trust? Who registrars for GST? The company trust?

-2. we are unsure if the initial purchase of the land had GST margin scheme applied or not. No mention in the sell contract. How to find out?

-3. Is a property under company trust eligible for GST margin scheme if other eligibility criteria are met?

-4. if marginal scheme is eligible, GST will be 7%, if ineligible, GST will be 10% of the sell price of each house? ($725000 each) is there anything we can deduct from the GST price like building cost etc?

-5. Anything changes with GST on sell rule due to having the properties under trust?

(PS: solicitors advice is to get dedicated accountant advice on all of this. Our accountant who prepared the trust structure for us has gone overseas for death of family member for unknown duration. His assistant can only answer “i dont know anything about trusts i need to find out”)

-6. Any accountant expertises on trust accounts based in Sydney? What is the cost of re-involving a new accountant for professional advice?



please any advice/insight on this matter other than criticism and scrutiny would be highly appreciated. Thanks

 

You are confused.

1. No
Trustee

2. The trustee should consider put in the contract on sale.

3. Yes

4. Not really. It is on the margin.

5. No. Entity doesnt change get

6. Try @Paul@PFI in Sydney

 

Thanks Terry. Will contact Paul. This is of course confusing as the main accountant is not available and I am no expert

 

It is very confusing.
But think of it like this. You are selling a book for $10 so you have to charge $1 GST.
The book costs you $8 to make so you get a 80c credit.

If the margin scheme applied to books you might buy a book for $8 and sell it for $11 so there is only a $3 margin, that is what you could pay GST on at 30c.

 

GST is unaffected by the type of entity. The fact its a trust has probably zero impact on anything other than the final profit or loss.

1. Determine if the margin scheme can be used
2. Have sale contract drafted for margin scheme IF it can be used
3. Register NOW for GST if not already done. The company trustee doesnt register. The trust will.
4. Records for all costs that show GST paid in total costs will be needed. GST on costs may be creditable in whole or part.
5. GST withholding will apply to these sale/s and is credited to the BAS after it is lodged.
6. Calculation of profit / loss use the GST exclusive value of sales and costs.

Our developer toolkit explains much of this.

Generally speaking, if you paid GST at the time of purchase for the land and you claimed any GST on the land then you cant sell using the margin scheme. If you buy the land from a related party it often prevents the margin scheme too.

 

Thanks heaps Paul. Ill go through this toolkit after work tonight. The initial purchase of the DA approved land did not have GST margin Scheme. Infact it was ticked as non taxable as you see in the photo. It was a vacant land, with DA approved for subdivision. New vacant land released in a new estate, no house on the premise. Now I wonder how did the owner tick “input taxed as the sell is of eligible premise”

 

Hang on somethings not right. Is this a contract to buy vacant land ? Vacant land cant be input taxed how they ticked the contract. How did your solicitor miss that !
Land intended to build a house cannot be input taxed. Supply of vacant land by an enterprise will be subject to GST. To be input taxed it needs a dwelling with an occupancy certificate. GST may have needed to be applied to the purchase. It may have been $0 (margin scheme ?) but it is a taxable supply. I assume the land cost more than $75K.

It comes down to who you purchased from too. Enquiries will need to occur. How do you know that GST wasnt included in the price ? It should have been and may be subject to GST as a consequence. The ATO may need to give you permission to use the margin scheme. (You will drop the vendor in the shi7)

The contract says "The margin scheme will be used in making the taxable supply". = No. technically thats wrong. The margin scheme wasnt used and so the purchase was taxed ?? But then they say its input taxed.

You need to see a solicitor (not a conveyancer) to address this. They may have evaded GST and left you with a problem. The end solution if they were conducting a enterprise may be to apply to the Commissioner to use the margin scheme in your contract of sale.

Your ""out"" may be contained in law: Note the BOLD condition appears to allow the MS to parties who bought from someone who was not registered. Diligent checking of this fact would be required as if they were registered but incorrectly made a contract to exclude GST then it may not be covered. However you may be able to seek a tax invoice through ATO intervention. An application to the ATO is more certain.

You purchased the property after 1 July 2000 and one of the following applies to the seller

• they were not registered or required to be registered for GST
• they sold you existing residential premises
• they sold the property to you as part of a GST-free going concern or GST-free farmland, and were eligible to use the margin scheme
• they sold you the property using the margin scheme.

​

 

Hi Paul thanks but

It sounds like a huge problem. As far as we know the owner brought this land and had DA approval for 2 detached but identical houses. Just before the build started they sold it as distress sell. They bought the land as owner occupier (info from sales agent). Could this be the reason why they ticked ‘NO” to taxable box?
I definitely do not understand input tax.
Asvice from solicitor is “talk to your accountant”.

What if we do not dig into it and just apply for marginal scheme?

 

If your solicitor cant provide tax advice on a prior and a proposed contract/s for land and the application of the margin scheme I would be concerned.

1. Did you buy vacant land or did you buy a house on the land capable of occupancy on the day it was settled ?

2. If 1= vacant land then the contract to acquire was likely defective on the part of the vendor. I would consider that the vendor has sought a DA and that may with a high degree of certainty be an element of an enterprise including approvals and demolition and then sale. MT 2006/1 and GSTD 2006/6 suggest the vendor required an ABN and to be registered for GST as the taxable supply is not exempt as input taxed when a sale of vacant land occurs. It is a taxable supply. Hence GST applied. They may have been entitled to use the margin scheme but by not doing so the ordinary method for calculating GST applies which is problematic for you use of the margin scheme now. However this was not done and you did not receive a tax invoice (to claim a credit) and your acquisition is by definition a creditable acquisition otherwise.

I would recommend that application be made to the Commissioner to use the margin scheme on the basis that the vendor was required to be registered for GST, but was not. It may be reckless to proceed and assume that the margin scheme may be used without that approval or legal advice that also confirms this view.

2. If 1 = a house on the land then the contract is seemingly correct and you should be able to use the margin scheme. If the house was defective with unconnected to services etc I would treat the acquisition as if it was vacant land as the home may not meet the requirements for a supply that is input taxed.

Input taxed is a term used in GST law to describe the situation where GST is not payable on a supply and the owner cannot claim input tax credits (ie GST paid) on any costs. (s9-5, s11-15)
It is how most sales of existing residential premises are made. Whether or not the vendor is registered or not. eg When Housing NSW offload old properties they are all input taxed supplies. Vacant land cant be input taxed. New residential premises cant be input taxed.

 

Kinda like a Simone Semmens question? Many may not be aware her case had a Somersoft originating question that led to the ATO seeking a review.

ATO considered that knowledge of tax advice. It led to higher penalties