ATO Interpretative Decision
ATO ID 2004/833
Goods and Services Tax
GST and its calculation for construction agreements made before 1 July 2000FOI status: may be released
Status of this decision: Decision Current
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
How does the entity, a builder, calculate the goods and services tax (GST) payable under section 19 of the A New Tax System (Goods and Services Tax Act Transition) Act 1999 (GST Transition Act) on a taxable supply of building construction?
Decision
The GST payable under section 19 of the GST Transition Act can be calculated using the following formula:
GST payable = 1/11 * (Price of the supply - value as at 1 July 2000)
where 'value as at 1 July 2000' is the value of all work and materials permanently incorporated in or affixed on the site of the building work in accordance with the agreement, as at the start of 1 July 2000.
Facts
The entity is a builder who is registered for GST.
In January 2000, the entity entered into a written agreement to construct a building. The completed building was made available to the recipient of the supply after 1 July 2000. The construction of the building is a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999, and a supply to which section 19 of the GST Transition Act applies.
The price of the supply is set out in the written agreement to be $110,000.
The entity determined, as at 1 July 2000, the value of all the work and materials permanently incorporated in or affixed on the site of the building work, to be $88,000. This valuation met the requirements of subsections 19(2) and 19(4) of the GST Transition Act.
Reasons for Decision
Subsection 19(3) of the GST Transition Act provides that GST is only payable on the supply to the extent that the price of the supply (less the amount of any GST payable on the supply) exceeds the value determined under subsection 19(2) of the GST Transition Act.
This can be expressed as a formula:
GST payable = 10% ((Price of the supply - GST payable) - value)
This formula can be restated as:
GST payable = 1/11 * (Price of the supply - value)
Therefore, if the price of the entity's supply is $110,000 and the value is $88,000, the GST payable is calculated as follows:
1/11 * ($110,000 - $88,000) = $2,000
GST payable = 10% * $110,000 - $88,000 = $2,200
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
section 9-5
section 19
subsection 19(2)
subsection 19(3)
subsection 19(4)
Related Public Rulings (including Determinations)
Goods and Services Tax Ruling GSTR 2000/14
Keywords
Goods and services tax
GST property & construction
GST transitional issues
Special transitional rules
ISSN: 1445-2782