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Edited version of your written advice

Authorisation Number: 1012904758316

Date of advice: 6 November 2015

Ruling

Subject: GST and supply of new residential premises

Question1

Will you, be liable for goods and services tax (GST), pursuant to section 7-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when you supply the units located in Australia, to your shareholders?

Answer

Yes

Question 2

If so, how is the GST payable, calculated?

Answer

GST is payable at the rate of 10% of the GST exclusive market value of your supplies.

Relevant facts and circumstances

You are a company created to construct residential units. You are currently not registered for GST.

Upon completion, the residential units will be supplied to your shareholders.

The scope of the project and company arrangements is detailed in 4 documents:

Shareholders Agreement

You have X shareholders, who are each issued with 1 ordinary Class Shares with the subscription amount of $XX.00.

The shareholders are required to pay an initial payment of $X.00 prior to your purchase of the land. They are liable to pay calls on the shares up to the subscription amount.

The shareholders each receive one lot upon completion of construction of the units. You will supply the units to the respective shareholders, who will surrender their interest in the respective share.

The shareholders will pay the difference between the initial payment made by shareholders and the Subscription Amount for the Designated Share.

The Subscription Amount is less than the GST inclusive market value of the residential unit.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

A New Tax System (Goods and Services Tax) Act 1999 section 72-70

A New Tax System (Goods and Services Tax) Act 1999 section 9-70 and 75

Reasons for decision

In this reasoning, unless otherwise stated,

Pursuant to section 7-1, GST is payable on taxable supplies.

Section 9-5 provides that your supplies will be taxable supplies where:

When you transfer the properties in question, you will make a supply of property located in the indirect tax zone, satisfying paragraph 9-5 (c) and the supply will not be GST free.

Therefore it is necessary to determine whether:

Input Taxed

Under section 40-65, a sale of residential premises is input taxed, but not to the extent that the residential premises are new residential premises.

As you will be supplying new residential premises to your shareholders, your supplies of those premises will not be input taxed supplies.

Consideration

Consideration is defined to include any payment, or any act or forbearance in connection with the supply of anything and any payment, or any act or forbearance in response to or for the inducement of a supply of anything. You supply the units to the respective shareholders in exchange for the shareholder surrendering their interest in the respective share. The shareholder's surrender of their interest in the respective share is the consideration for the supply.

Enterprise

Miscellaneous Taxation Ruling 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 (MT 2006/1) considers the meaning of carrying on an enterprise.

Furthermore, paragraph 234 of MT 2006/1 distinguishes between activities done in the form of a 'business' and those done in the form of 'an adventure or concern in the nature of trade'.

Paragraph 262 of MT 2006/1 acknowledges that the question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions. Paragraph 263 continues, stating that the issue to be decided is whether the activities being conducted are an enterprise in that they are of a revenue nature as they are considered to be activities of carrying on a business or an adventure or concern in the nature of trade (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset.

Paragraph 178 of MT 2006/1 lists a number of indicators considered when attempting to determine whether an activity or series of activities amount to a business. These activities can also apply to an activity done in the form of an adventure or concern in the nature of trade:

You were established for the specific purpose of acquiring, developing and disposing of property for the benefit of shareholders. Accordingly, your activities of land acquisition, dwelling construction and disposal of real property constitute 'carrying on of an enterprise' of property development for the purpose of section 9-20.

Therefore, the supply of the new residential premises to the shareholders will be made in the course or furtherance of an enterprise that you carry on.

Registration

Section 23-5 states:

You are required to be registered under this Act if:

The registration turnover threshold is currently $75,000.

Section 188-10 of the GST Act is relevant for working out whether your GST turnover 'meets, or does not exceed', a turnover threshold.

Whether you have a GST turnover that meets or exceeds a particular turnover threshold depends on an objective assessment of your projected GST turnover and your current GST turnover.

You are carrying on an enterprise of property development.

Your projected GST turnover will exceed the $75,000 threshold, as demonstrated by the Designated Lot Prices and Initial Subscription (payments) made by investors.

Therefore, you are required to be registered for GST.

Your supplies of the residential units meet all the requirements of section 9-5. Further they are neither GST-free nor input taxed. Therefore, you are making taxable supplies when you supply the units to your shareholders.

Accordingly, GST will apply to your supplies of the residential units.

Question 2

GST payable on the supplies

The sale price will equal the full subscription price, which is less than the GST inclusive market value of the premises.

Subdivision 72- C provides that where you make a taxable supply to an associate (eg shareholders) for consideration that is less than the GST inclusive market value, the value of that supply is the GST exclusive market value of the supply. You will be supplying the residential units to the shareholders for consideration that is less than the GST inclusive market value of your supply. Further, the exemption in subsection 72-70 (2) does not apply, as the shareholders will not be acquiring the property for a creditable purpose.

The amount of GST payable on a taxable supply is 10% of the value of the taxable supply ie the GST exclusive market value of the units.

You will need to determine the GST exclusive market value of your supplies of each of the units and then calculate 10% of those amounts to work out the GST payable.

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