Disengaged property developers
As part of our increased focus on property development, we are keeping a watchful eye on company directors with a history of avoiding GST obligations. Rather than look at the business, we're looking at the people who control the business that are deliberately non-compliant.
Our aim is to engage directly with these developers at the point of GST registration and throughout the property lifecycle. We will encourage them to correctly assess, report and pay their liabilities. Where necessary, we will ask them to provide a security bond deposit against projected future tax liabilities or we may issue a garnishee.
We are committed to creating a fair and level playing field for company directors who are trying to do the right thing. We understand GST, and its relation to property transactions, can be complex.
You must ensure you report your property transactions correctly, including the transfer, sale and/or purchase of real property. Even with a 'one-off' transaction, you may be conducting an enterprise and be required to register for GST.
If you believe you may have made a mistake recording your property transactions, you can make a voluntary disclosure. A voluntary disclosure provides you with the opportunity to bring your tax affairs into order.
Registered tax and BAS agents
If you have a client in the property development industry, we may contact them at registration stage and throughout the property lifecycle.
We will encourage your clients to correctly assess, report and pay their liabilities. Where necessary, we will ask them to provide a security bond deposit against projected future tax liabilities or we may issue a garnishee.
Ensure your client reports these transactions on their activity statements or income tax returns to ensure they meet their tax obligations.
If you think one of your clients has made an error relating to a property transaction, they can correct it via a voluntary disclosure.
All persons mentioned in the scenarios are fictional
Example one: Taking action to guarantee future GST
Ron and Geoff had always worked well as business partners in property development. While they had several insolvent entities linked to them, they thought they could expand their services and have one more go at it.
They registered a new entity called Ron's Rural Properties. Planning and building began and Geoff lodged their first activity statement (BAS) claiming more than $550,000 in GST credits. However, because of their history as directors of insolvent companies, Ron and Geoff were flagged by the ATO.
An ATO case officer contacted Ron and Geoff and issued them with a security bond demand. This required Ron and Geoff to provide a guarantee that the GST would be paid before the sales of the property development went through.
With Ron and Geoff's cooperation, more than $450,000 in future GST claims has been secured.
Example 2: Know your responsibilities as a director of a company
When Gary turned 50, he decided that it was time to embark on a career change to pump up his nest egg. He had been keenly watching the Queensland property market over the last 18 months and tipped it to boom within five years.
Using a payout from his previous employer, he formed Gary McDougall Properties, purchased a block near the Tweed River and contracted some mates in the construction industry to build five free-standing townhouses on the cheap.
18 months later, Gary had sold all five properties and was living the laid-back Queensland lifestyle.
Realising he had found his calling, Gary replaced Gary McDougall Properties with the more aptly-named Sun, Surf and Sand Properties and found another potential property.
Over the next two years, Sun, Surf and Sand Properties kicked into overdrive, building a complex of 16 apartments on the North Coast, with many allocated to buyers off-the-plan.
Unknown to Gary, the ATO had flagged him as a taxpayer who may pose a risk of liquidating his company after reporting the property sales.
Through a further audit, the ATO discovered Gary failed to pay $1.21 million on the five townhouses developed by Gary McDougall Properties. The ATO set up a meeting with Gary and Jen - the in-house accountant for Sun, Surf and Sand Properties.
The ATO advised Jen and Gary they could help themselves by voluntarily paying what Sun, Surf and Sand Properties owed to the ATO. They were warned that if they continued to neglect their responsibilities, they would be issued a garnishee notice.
Over the next six months, Gary and Jen met several times with the ATO and negotiated a monthly payment plan. During this time, Jen continued to lodge activity statements for Sun, Surf and Sand Properties but did not pay any GST, which increased the debt.
At another meeting with the ATO, Gary and Jen agreed to sell off some unencumbered apartments and paid the $1.34 million debt in full. Because they chose to cooperate with the ATO, legal action was avoided.