1012386453825 | Legal database

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Authorisation Number: 1012386453825

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Ruling

Subject: Sale of property

Question

What are the GST consequences for you, as an individual, of the transactions leading up to the sale of the town houses?

Answer

See below.

This ruling applies for the following periods:

Not applicable in this case

The scheme commences on:

Not applicable in this case

Relevant facts and circumstances

You are an individual and also are the sole director of a company (the Company).

The Company is registered for the goods and services tax (GST).

You registered for the GST in your individual capacity from April 2012.

You are carrying on an enterprise of property development.

The Company purchased land with a house on it from an unregistered entity.

The property address is in Australia

The Company states that the supply to the Company was not a taxable supply and no GST was included in the purchase price.

The Company demolished the house and prepared plans for the construction of town houses on the land for sale.

The Company sold the proposed town houses "off the plan" in 2011 with the last one being sold late that year.

The Company entered into contracts of sale for the town houses with individual purchasers.

The contracts of sale indicated that the sales are to be made under the margin scheme.

The Company undertook the construction of the town houses and claimed input tax credits for creditable acquisitions it made in respect of the construction work.

In late 2011 the Company transferred the title of the land to you for a sum less than the purchase price of the land and you paid Stamp Duty on that lesser amount. By virtue of this transfer, you, in your personal capacity, became the sole proprietor of the property.

Contemporaneously with the transfer, the Company assigned all of their rights, entitlements and obligations with respect to the contracts of sale to you.

The Company did not treat the sale to you as a taxable supply and did not remit GST on the supply.

Although the land was transferred to you, the Company continue to carry on with the construction of the town houses and to claim input tax credits on the acquisitions.

You did not have a written agreement with the Company for the Company to complete the construction of the town houses.

You subdivided the land to make the town houses separate properties.

At the date of settlement you transferred the subdivided properties with the town houses to the individual purchasers at the prices that were shown in the contracts of sale that the purchasers signed with the Company.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5.

Reasons for decision

Sale of the property

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that you make a taxable supply if:

1. you make the supply for consideration, and

2. the supply is made in the course or furtherance of an enterprise you are carrying on, and

3. the supply is connected with Australia, and

4. you are registered or are required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

In this case you supplied real property, in the form of townhouses, for consideration and it was made in the course of an enterprise you were carrying on. The supply was connected with Australia because the property is in Australia and you were registered for the GST at the time the settlements took place. Furthermore, the supply of the properties is neither GST-free nor input taxed because Divisions 38 and 40 of the GST Act do not apply to these supplies.

Therefore, the supplies of the townhouses you make to individual purchasers are taxable supplies. You are therefore required to remit 1/11^th of the consideration you received to the Tax Office as GST.

Margin scheme

You state that the contracts of sale the Company entered into with individual purchasers state that the supplies are made under the margin scheme.

You can only apply the margin scheme where all of the requirements of section 75-5 of the GST Act are met. Subsection 75-5 (1) states:

The *margin scheme applies in working out the amount of GST on a *taxable supply of *real property that you make by:

a) selling a freehold interest in land; or

b) selling a *stratum unit; or

c) granting or selling a *long term lease;

if you and the *recipient of the supply have agreed in writing that the margin scheme is to apply.

(Asterisked items are defined at section 195-5 of the GST Act)

Subsection 75-5(3) of the GST Act lists supplies which are ineligible for the margin scheme. Paragraph 75-5(3)(a) of the GST Act states:

A supply is ineligible for the margin scheme if it is a *taxable supply on which the GST was worked out without applying the *margin scheme.

In this case the Company's supply of the property to you was a taxable supply even though the Company did not treat the supply as such. Further, the supply was not made under the margin scheme. Therefore, the supplies of the townhouses you make to individual purchasers are ineligible for the margin scheme. Although the contracts of sale assigned to you state that the margin scheme applies to the sales, it has no consequence here as the supplies you made do not satisfy the requirements of section 75-5 of the GST Act.

Input tax credit

You cannot claim input tax credit for the acquisition of the property from the Company as you were not registered for the GST in your individual capacity at the time you made the acquisition.

Under section 11-20 of the GST Act you are entitled to the input tax credit for any creditable acquisitions that you make. Section 11-5 of the GST Act defines what constitutes a creditable acquisition. According to this section, you can make a creditable acquisition if, among other things, if you are registered or are required to be registered.

You state that you were not registered for the GST at the time you made the acquisition. Whether or not you were required to be registered is a matter that has to be decided based on the facts and circumstances.

Provided you satisfy all the other requirements of section 11-5 and section11-20 of the GST Act, you may be able to claim input tax credit for the acquisition of the property if you apply to backdate your GST registration to cover the acquisition date and the Commissioner allows you to do so.

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