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Edited version of private ruling
Authorisation Number: 1011836396090
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Ruling
Subject: GST and renovation and sale of property
Questions
1. Is the developer considered to be making a taxable supply of building services under the draft Development Agreement to the individual in respect of a sale unit pursuant to section 9-5 of the A New Tax system (Goods and Services Tax) Act 1999 (GST Act)?
2. If:
(a) the developer is not considered to be making a taxable supply of building services to the individual in relation to a sale unit;
(b) the sale of a sale unit constitutes new residential premises; and
(c) the individual's sale of the sale unit is taxed solely on capital account.
iIs any part of the sale proceeds received on the sale of the sale unit consideration (as defined in section 9-15 of the GST Act) for a taxable supply made by the developer to a purchaser of the sale unit? Namely, is GST levied only on the entitlements received by the developer from the sale?
3. If:
i. the developer is not considered to be making a taxable supply of building services to the individual in relation to a sale unit;
ii. the sale of a sale unit constitutes new residential premises; and
iii. the individual's sale of the sale unit constitutes a profit making scheme.
how is the GST calculated on the sale of the sale unit? Namely is GST levied on the whole sale proceeds received covering both the proprietor's entitlement and the developer's entitlement in relation to the sale, and is the individual liable to remit GST in respect of the proprietor's entitlement amount related to the unit and the developer is liable to remit GST in respect of its entitlement in relation to the sale?
Advice
1. The developer will be making a taxable supply of development services to the individual under the draft Development Agreement and will be liable to pay GST on the consideration they receive under clause 11 in the draft Development Agreement.
2. Not relevant as the developer will be making a supply of development services and not a supply of units under the draft Development Agreement.
3. Not relevant as the developer will be making a supply of development services and not a supply of units under the draft Development Agreement
Relevant facts
The developer is an Australian company and is registered for the goods and services tax (GST).
The developer will enter into a written Development Agreement with a related entity, an individual where they will carry out alterations to the individual's Australian property that constitutes several units and organise the marketing and sale of all units excluding one unit which will be retained and leased by the individual. We have received a copy of the draft Development Agreement.
The developer's entitlement for fulfilling their obligations under the draft Development Agreement is:
(i) a share of the sale proceeds received from the sale of the units; and
(ii) the developer's fee for the unit that will be retained by the individual for the purposes of leasing it.
Reasons for decisions
Question 1
From the draft Development Agreement, the developer is to undertake renovation and development of the property owned by the individual, supervise and promote the sale of all units (excluding one) after the renovation and development has been done.
The developer's entitlement for fulfilling their obligations under the draft Development Agreement is:
(i) a share of the sale proceeds received from the sale of the units; and
(ii) the developer's fee for the unit which will be retained by the individual for the purposes of leasing it.
From the above, we consider that the developer is making a supply of development services which includes promoting the sale of the units to the individual under the draft Development Agreement.
The next step is to determine the GST status of the supply of development services made by the developer.
GST status of developer's supply to the individual
GST is payable on a taxable supply. Under section 9-5 of the GST Act, you make a taxable supply if:
(a) you make the supply for consideration;
(b) the supply is made in the course of an enterprise that you carry on;
(c) the supply is connected with Australia; and
(d) you are registered or required to be registered for GST.
However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
From the information received, the developer will satisfy all the requirements in section 9-5 of the GST Act as:
· the developer will receive consideration for their supply under the draft Development Agreement;
· the developer will make the supply in the course of an enterprise (business) that they carry on;
· the supply is connected with Australia as the supply is made through a business that the developer carries on in Australia;
· the developer is registered for GST; and
· there is no provision under the GST that makes the developer's supply of development services input taxed or GST-free.
Accordingly, the supply of development services that the developer will make to the individual under the draft Development Agreement will be a taxable supply under section 9-5 of the GST Act. The developer will be liable to pay GST on that supply.
Questions 2 and 3
As discussed in question 1, the developer will be making a taxable supply of development services to the individual under the draft Development Agreement.
Section 9-70 of the GST Act provides that the GST payable on a taxable supply is 10 per cent of the value of the taxable supply. The value of a taxable supply is 10/11 of the price.
Section 9-75 of the GST Act defines the value of taxable supplies by reference to the price of the supply. The price of a taxable supply is the total consideration for the supply inclusive of GST. The GST payable to the Australian Taxation Office (GST) on a taxable supply is 1/11 of the consideration received for the supply.
Accordingly, the GST payable by the developer will be 1/11 of GST inclusive payment they will receive from the individual for their supply of development services under the draft Development Agreement.