GST on Developments and the 5 year rule

No GST

 

thanks everyone, its as clear as mud.... damn

 

Thats not unusual for the ato to provide differing opinions. Happens all the time

Your adviser will be best to give advice as they will be able to view the contract.

 

I can't see what the issue is. It is straightforward

 

So I can use the margin scheme when selling my villas

thanks so (3) this confirms I am ineligible

and here

if you and the * recipient of the supply have agreed in writing that the margin scheme is to apply.

(1A) The agreement must be made:

(a) on or before the making of the supply; or

 

Sounds like you need legal advice to interpret legislation and apply it to your specific circumstances

 

are you the recipient or the supplier?

 

THis is referring to when you sell it. So you and the recipient (who you sell it to) have to agree in writing (in the sales contract of the development product) that when you supply (sell it)

All those words have actual definitions which you can look up - those are just my non accountant understanding

 

Personally I have never mentioned it when buying a development site contract and been able to use the margin scheme (where applicable) on sale of development contract by putting it in the end product sales contract. I've not been audited by the ATO but this is how my accountant advised me to do it.

 

Thanks, this is great news. I will refer this to my accountant.

 

Thanks everyone.

 

When buying land for a development is wise to seek advice quickly on whether tha land may later be eligible for sale using the margin scheme. Note that it may be a issue where a buyer acquires from a deceased estate / executor and further enquiries may be required. Purchase of vacant land may also pose more concern than buying a existing dwelling.

ie where property has been purchased or acquired either from:

• inheriting the property
• an associate
• a fellow GST group member
• a fellow participant in a GST joint venture
• an associate without payment
• a GST-free sale (either as part of a going concern or farmland) where the seller was not eligible to use the margin scheme.

If none of these amendments affect your purchase or acquisition, you could be eligible to use the margin scheme if you either:

• purchased the property before 1 July 2000 (the start of GST)
• 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.

Review of the purchase contract may address 90% of concerns.

 

Paul - to clarify - in your Margin scheme example calcs has the GST credit for the land Purchased been claimed twice?
Is this correct?
Thanks

 

Hi Paul, what if a company purchased a site with a house on it from a director of the same company (owned as an individual in their personal name) at market price with a payment made?
Would the company be able to use the margin scheme if the company then developed the site & sold?
Can call it deathstar inc etc if we like.

Thanks

 

Many factors may affect this. eg The sale to a Co may be input taxed and allow the subsequent "first"owner of new resi premises to use the MS. Duty etc and the triggering of a CGT event would be a financial hindrance of course.

 

If a developer has been holding stock for resale, but renting out the properties for 5 years. And adjusting past gst credits accordingly along the way to account for rent.

Can GST be excluded in the sale after 5 years, do all the GST credits need to be paid back?

 

No GST can be claimed at all. There should be nothing to repay. The overclaim is a matter that ATO can and will address and impose penalties and interest. They are aggressive on this issue and consider it evasion / avoidance rather than a mistake. At best it is reckless.

ITCs are creditable if there is a creditable purpose (ie sale of new resi premises). If the premises are being used for input taxed supply (rent) then the GST cant be claimed - at all - until such time the creditable use becomes evident (ie sale). When the use changes the mixed supply can be calculated if that sale occurs WITHIN 4 years. When GST tax credits hit 4 years from the quarter when paid they expire. If the premsies are continually rented for 5 years then there is no GST to claim, none to pay and no adjustment event to calculate.

The catch to this is also measuring the start point for the 5 years. If the premises are rented and also beinga dvertisied for sale the 5 yaers doesnt even start. And it requires CONTINUOUS use. Getting it wrong can cost. A recent tax case had those issues and sale occurred after 5 yaesr but in the first year they had collected rent and offered them for sale. The sales were found to be taxable supplies and the contracts didnt nominate the margin scheme (silent). GST credit had expired too. Cost them 9.09% of the sales proceeds which could represent a huge % of the profit.

All this should be ubnderstood prior to commencing any construction. Its a fundamental element of the projecvt tax plan and caculations. I regularly see taxpayers claim GST on sales that "will occur" for them to change their mind. Then the need to repay can amount to tens of thousands. The ATO will seek evidence the properties are marketed and offered for sale and any OTP contracts will assist. Being unsure about sales means claiming GST should be deferred. I often suggest quarter by quarter review.