Prof. Dominique Fischer, Curtin University

GST in Australia

This presentation is illustrated and completed with the attached Excel workbook

GST excel presentation

Must be read before proceeding with the PP presentation

Prof. Dominique Fischer, Curtin University

The margin scheme: simple concept

• To apply to the sale of simple property, strata titles and long term leases

• You pay the GST on the difference (margin) between value on June 30 2000, or value at transaction if bought later

Prof. Dominique Fischer, Curtin University

For purchase before…

Prof. Dominique Fischer, Curtin University

For purchase after

• difference between GST inclusive sale price and cost of acquisition

• can only be applied if the GST charged on the property was calculated using the margin scheme.

• Where property is acquired under the margin scheme, the purchaser will not be entitled to an input tax credit for the GST paid on acquisition.

Prof. Dominique Fischer, Curtin University

Taxable supply

• By an Australian registered entity

Selling:

1. residential premises

2. new residential premises

3. commercial residential premises

Prof. Dominique Fischer, Curtin University

New Residential Premises

1. new residential premises;

2. premises that are substantially renovated;

3. premises built on same land as demolished property.

Now we can consider how to calculate the GST liability on the sale.

Prof. Dominique Fischer, Curtin University

Valuation of completed premises

– Made in writing by a professional valuer or

– The unimproved capital value of the land as determined by VGO

– Where the contract of sale is executed on or before 30 June 2000, but settlement is not effected until on or after 1 July 2000, it is the consideration stated in the contract.

Prof. Dominique Fischer, Curtin University

Valuations on partly completed premises

– Made in writing by a professional valuer, having regard to the market value of the land and buildings at their stage of completion, costs to complete and other costs occurring post valuation date; or

– The value determined using the costs of completion method (provided the sale is completed by 1 July 2005).

Prof. Dominique Fischer, Curtin University

The cost of completion method

• The costs incurred prior to the valuation date are calculated as a percentage of the total costs of completion.

• Allowable Costs:

– Land at cost;

– Direct construction costs;

– Internal infrastructure costs;

– External infrastructure costs directly related to the property;

– Associated legal fees, design and local government fees, site administration expenses, earthworks, drainage, plumbing, wiring etc;

– Financial contributions toward such costs.

Prof. Dominique Fischer, Curtin University

Real Property Acquired post 1 July 2000

• The vendor must have used the margin scheme.

• No input tax credit for this GST paid on acquisition.

• Subdivision – acquisition cost to be allocated in proportion of units sold.

• Only land acquisition costs are considered

• Construction costs are not considered

Prof. Dominique Fischer, Curtin University

Going concern

• Sale for consideration

• The purchaser is GST registered

• The parties agree in writing that the transaction is on a going concern business or commercial property

• The vendors continues to run the activity until the date of the transaction settlements

• The vendors provides all the necessary equipment and contracts needed to carry on the business.

Prof. Dominique Fischer, Curtin University

What’s being transacted?

• All Things that are necessary for the continued operation

• Question of Fact:

– Must employees be transferred?

– Must goodwill be transferred?

– an asset sale will generally not qualify;

– require more than the business structure alone.

Prof. Dominique Fischer, Curtin University

Some examples: a vacant building

– The building includes commercial premises but is not occupied at time of sale,

– some refurbishment, balance advertised as available for lease

– ATO accepts as Going Concern

– Refurbishment is one of the activities of the enterprise of leasing buildings

Prof. Dominique Fischer, Curtin University

A building partially leased

.

– Owner uses two floors, leases three floors

– Can identify portion of building in which enterprise of leasing is being conducted

– Leased portion of building can be Going Concern

Prof. Dominique Fischer, Curtin University

Property not necessary to the conduct of enterprise

– Sale of motor repair business, premises and a residence on adjacent block. ATO says residence is not necessary to continue enterprise and is not used in carrying on enterprise.

– Not part of Going Concern.