GST on Purchase and then treatment for Development

Hi,

I am looking for some guidance on working out whether GST Margin Scheme is available, or whether need to add GST to purchases etc etc.

Looking for a document(s) that describe the different scenarios of sellers and purchasers and what GST affect that will have.

Ie, the Contract of Sale REIV in Vic have the following options for GST:

GST (general condition 19)
Subject to general condition 19.2, the price includes GST (if any) unless the next box is checked:

(BOX 1) GST (if any) must be paid in addition to the price if the box is checked

(BOX 2) This sale is a sale of land on which a 'farming business' is carried on which the parties consider meets the requirements of section 38-480 of the GST Act if the box is checked

(BOX 3) This sale is a sale of a going concern if the box is checked

(Box 4) The margin scheme will be used to calculate GST if the box is checked

(end quote)

My question is, is there anywhere that has done a good summary of what each of the above mean, and their affect on whether we can use the margin scheme in the future?

My general understanding is:
- if Box 1 is ticked then GST is in the sale
- if Box 2 is ticked then the seller needs to be in the business of farming, and we would too in order for this to be a GST free sale/purchase
- if Box 3 is ticked then the business (going concern) will need to continue and it will be a GST sale
- if Box 4 is ticked then the seller is selling it under the margin scheme, and we will also have the option to use the margin scheme when we sell our lots in the future

Are my above general assumptions correct?

What happens if the landowner has not ticked any box? Does that mean we can use the margin scheme? Or do we need to investigate more into the seller? What questions are we asking? What scenarios are there that we need to be mindful of?

Ie, what if the vendor is an individual, how does that affect the treatment?
What if the vendor is an individual, but is registered for GST?
What if the vendor is a company?
What if the company is or isn't registered for GST?

 

There is far more to the tax planning for any construction that this. It is one element. You need a comprehensive tax plan for each property. This includes what if any GST applies, iof the Margin scheme can be used and what GST can be claimned. Then record keeping, reportable paymnets and many other issues. One I see a bit of is developers that dont even consider workers comp. A Director whether paid is not is a worker. And can be on site and be injured in the performance of duties.

You never "add" GST to a property sale. It may include GST. How much ? Not always 1/11th. Property is sold for far value and this can include GST whether or not its shown !! . Just because it includes GST doesnt mean its creditable on purchase either.

I only give tax advice on the use of the margin scheme if I have a copy of the contract. Too easy to rely on wrong nformation and find a defect or issue. Defects and issues can often even be fixed. BUT...Some cant.

 

The ato website has a nice summary. The questions you ask are far reaching and the impact of getting it wrong is high.

The ato summary is also the ato perspective of the law. You will not get opportunities from it and it is so vague that it is hard to pin down anything - but it is the best high level summary around to give you a feeling.

You need more than a feeling when it comes down to it.

The impact of the vendor is more affected by their intention and business activity as opposed to their legal form (company v individual etc).

 

The ATO still hasnt updated for its views based on the draft property and construction info they had there...and withdrew. Its a shame they didnt issue final rulings (yet) as it covered some key and important issues