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    Property and Construction Industry Partnership - issues register - section 12 - off-the-plan sales

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    (a) added, (u) updated, (w) withdrawn

     Issue Number

     Index

     Date

     History

     12

     Off-the-plan sales

     12.1 

    What is an 'off the plan' transaction in the context of the sale of real estate?

    09/04/01

     

     12.2 

    What is supplied in an 'off the plan' sale?

    (u)

     

     12.3 

    What is supplied in the resale of 'off the plan' contractual rights?

    09/04/01

     

     12.4 

    Does the transfer of 'off the plan' contractual rights constitute a taxable supply?

    09/04/01

     

     12.5 

    Can an 'off the plan' interest constitute residential premises, which would result in the interest being input taxed?

    09/04/01

     

     12.6 

    If entity A enters into a contract to purchase property 'off the plan' and simultaneously enters into another contract of identical form to sell the property to entity B, is it supplying entity B the property or an 'off the plan' interest?

    29/10/03 (u)

     

     12.7 

    What is the GST treatment of security deposits in relation to 'off the plan' sales?

       

     12.8 

    When does attribution occur when a deposit is paid to a trustee?

    29/10/03 (w)

     

     12.9 

    When does attribution occur when a deposit is paid to a vendor?

    29/10/03 (w)

     

     12.10 

    Do bank guarantees or deposit bonds constitute a 'deposit held as security' for the purposes of section 99-5 of the GST Act?

    29/10/03 (w)

     

     

     'the GST Act'

     A New Tax System (Goods and Services Tax) Act 1999

     'the GST Regulations'

    A New Tax System (Goods and Services Tax ) Regulations 1999

     'the Transition Act'

     A New Tax System (Goods and Services Tax Transition) Act 1999

     'the Transition Regulations'

    A New Tax System (Goods and Services Tax Transition) Regulations 2000

     Relevant Public Rulings

     MT 2006/1 The New Tax System : 'the meaning of 'entity carrying on an enterprise' for the purposes of entitlement to an Australian business number ('ABN')'

    GSTR 2000/29 Goods and services tax: 'attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25 '

     Relevant Determination

     GSTR 2006/2 Goods and services tax: deposits held as security for the performance of an obligation

     Relevant sections

     Section 29-5 'Attributing the GST on your taxable supplies' of the GST Act

     Section 40-C 'Residential premises' of the GST Act

     Division 99 'Deposits as security' of the GST Act

     

     

    12.1 What is an 'off the plan' transaction in the context of the sale of real estate?

    For source of ATO view refer to Capital Gains Tax Determination Number 18, TD 18 Capital Gains: From what time is indexation available in 'off the plan' purchases?

     ATO position

    An 'off the plan' purchase is defined in Capital Gains Tax Determination Number 18 as follows:

    • An 'off the plan' purchase occurs where the acquisition of land or land and building cannot be completed until certain events have happened. For example, where the owner of the land has not completed all capital works required before building can commence such as finalisation of boundaries, roads and telephone and electricity connections. Another example where 'off the plan' purchase can occur is where an apartment block is in the course of construction.
    • In these cases, the purchaser enters into a contract, usually paying a deposit on signing the contract, with settlement and payment of the balance of the purchase price not occurring unless a specified event happens. This could be the finalisation of all capital works needed before building can commence or the completion of the building or apartment.

    An 'off the plan' contract is a contract subject to a condition precedent to the performance of the contract (rather than a condition precedent to the existence of the contract). This means that where an obligation depends on a condition being fulfilled, until that condition is fulfilled, there is nothing to be done.

    12.2 What is supplied in an 'off the plan' sale?

    Non-Interpretative - straight application of the law

     ATO position

    The date of settlement will determine what is being supplied in relation to 'off the plan sales'. Prior to settlement, the supply is that of a contractual right to the property. At settlement, the supply becomes the supply of new residential premises as defined in section 40-75 of the GST Act.

    12.3 What is supplied in the resale of 'off the plan' contractual rights?

    Non-Interpretative - straight application of the law

     ATO position

    One issue arising in relation to 'off the plan' sales concerns the GST implications for purchasers who acquire these interests and resell (ie assign) these contractual interests before completion.

    In view of the purchase of the strata unit being a contract subject to a condition precedent and title not passing until the unit is complete, all the vendor of an 'off the plan' unit is assigning is the rights under a contract. Nothing may have even been built at the time the 'off the plan' rights are assigned.

    12.4 Does the transfer of 'off the plan' contractual rights constitute a taxable supply?

    Non-Interpretative - other references (see MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian business number)

     ATO position

    Yes, if the requirements of section 9-5 of the GST Act are met. The principal issue in determining whether a taxable supply has been made where an 'off the plan' contractual interest is assigned is whether or not the vendor of the 'off the plan' interest is making a supply in the course or furtherance of an enterprise carried on by the vendor.

    The answer to this question will ultimately turn on the relevant facts. Generally if an assignment of 'off the plan' contractual rights reflects a significant commercial activity or has characteristics of a business deal, the sale of those rights will be made in the course or furtherance of an enterprise.

    An individual may acquire real estate off the plan with no intention of reselling that contractual interest. If this contractual interest is subsequently disposed of because of one or more of the following reasons:

    • change in financial circumstances and can't afford to go ahead with the purchase;
    • purchaser decides they do not want to live in the real estate; or
    • purchaser changes their mind about the judicious nature of the investment and sells to avoid making a loss or greater loss at a later point of time (eg after completion) it would be accepted that a supply was not made in the course or furtherance of an enterprise carried on by the purchaser. The supply lacks the characteristics of a business deal and does not reflect significant commercial activity.

    On the other hand a person who acquires an 'off the plan' interest with the sole purpose of reselling that interest at a profit may display the characteristics of a business deal, thus making a supply in the course or furtherance of an enterprise.

    12.5 Can an 'off the plan' interest constitute residential premises, which would result in the interest being input taxed?

    Non-Interpretative - straight application of the law

     ATO position

    No. For a sale to be input taxed under Subdivision 40-C of the GST Act, the real property must be residential premises. It is not considered that the vendor is selling 'residential premises' as defined in section 195-1 of the GST Act when off the plan contractual rights are assigned for consideration.

    The words 'residential premises' are defined in section 195-1 of the GST Act in the following way means land or a building occupied or intended to be occupied as a residence, and includes a floating home.

    12.6 If entity A enters into a contract to purchase property 'off the plan' and simultaneously enters into another contract of identical form (sometimes known as a 'mirror contract') to sell the property to entity B, is it supplying entity B the property or an 'off the plan' interest?

    Non-Interpretative - straight application of the law

     ATO position

    Entity A is supplying entity B the property rather than the 'off the plan' interest. It would be a different situation if entity A was assigning the rights under its purchase contract to entity B - see Issue 12.3.

    If the property is residential premises to be used predominantly for residential accommodation, the sale to entity B will not be subject to GST because it is an input taxed supply under section 40-65 of the GST Act. The sale will not be a supply of new residential premises as defined in section 40-75 of the GST Act. However, the sale of the property to entity A would be a supply of new residential premises because it's the first time the property was sold as residential premises and it hadn't previously been the subject of a long-term lease.

    12.7 What is the GST treatment of security deposits in relation to 'off the plan' sales?

    Non-Interpretative - straight application of the law

     ATO position

    See the answers to Issues 16.1 to 16.3. The same answers apply regardless of whether the security deposit is made by way of:

    • direct payment to a trustee
    • direct payment to the vendor with no trustee arrangements
    • a bank guarantee which guarantees the payment of the deposit, or
    • a deposit bond.

    Issues 12.8 to 12.10 have been withdrawn and replaced by Issue 12.7 above.

      Last modified: 05 Jul 2013QC 16494