Taxpayer Alert
TA 2009/4
Land owner's use of a registered associate to maximise input tax credit entitlements and reduce Goods and Services Tax (GST) payable under the margin scheme-
This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
FOI status: may be released
| Taxpayer Alerts are intended to be an "early warning" of significant new and emerging higher risk tax planning issues or arrangements that the Australian Taxation Office has under risk assessment, or where there are recurrences of arrangements that have been previously risk assessed.
Taxpayer Alerts will provide information that is in the interests of an open tax administration to taxpayers. Taxpayer Alerts are written principally for taxpayers and their advisers and they also serve to inform tax officers of new and emerging higher risk tax planning issues. Not all potential tax planning issues that the Tax Office has under risk assessment will be the subject of a Taxpayer Alert, and some arrangements that are the subject of a Taxpayer Alert may on further examination be found not to be of concern to the Tax Office. In these latter cases the Taxpayer Alert will be withdrawn and a notification published which will be referenced to that Taxpayer Alert. Taxpayer Alerts will give the title of the issue (which may be a scheme, arrangement or particular transaction), briefly describe the issue and will highlight the features which are of concern to the Tax Office. These issues will generally require more detailed analysis to provide the Tax Office view to taxpayers. Taxpayers who have entered into or are contemplating entering into an arrangement similar to that described in this Taxpayer Alert can seek a formal determination of the Tax Office's position through a private ruling (noting that the Taxation Administration Act 1953 sets out circumstances where the Commissioner may decline to issue such a ruling). Such taxpayers might also contact the tax officer named in the Taxpayer Alert and/or obtain their own advice. This Taxpayer Alert is issued under the authority of the Commissioner. |
This Taxpayer Alert describes an arrangement that purportedly allows a land owner to register for GST as late as possible to minimise its GST payable under the margin scheme, but still claim a full input tax credit on its acquisition of construction services from its associate.
DESCRIPTION
The alert applies to arrangements having some or all of the following features:
- 1.
- An unregistered entity (the land owner) acquires land prior to 1 July 2000.
- 2.
- The land owner engages a GST registered associate to construct and market residential premises.
- 3.
- The associate engages a builder to construct the residential premises, provides payment for the construction services and claims input tax credits on these acquisitions.
- 4.
- The associate on-supplies these services to the land owner but does not require progress payments for the services.
- 5.
- The land owner registers for GST and receives an invoice from its associate, just prior to the sale of the premises.
- 6.
- The land owner claims a full input tax credit on its acquisition of the services from its associate.
- 7.
- The land owner calculates its GST payable on the sale of the premises under the margin scheme using a valuation of the land at the date of its GST registration.
- 8.
- The basic features of this arrangement can be summarised diagrammatically as follows:
FEATURES WHICH CONCERN US
The Tax Office considers that an arrangement of the type described above gives rise to taxation issues that include whether:
- a.
- The land owner is entitled to a full input tax credit under Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act') on its acquisition of the services from its associate;
- b.
- The land owner is required under Divisions 23 and 188 of the GST Act to be registered at a point earlier than the date its registration takes effect;
- c.
- Any act or payment by the land owner causes the associate's GST to be attributable in accordance with section 29-5 of the GST Act to a tax period prior to the tax period to which the associate treats its GST as being attributable;
- d.
- Any act or payment by the land owner causes any input tax credit that the land owner is entitled to, to be unattributable under section 29-10 of the GST Act because the act or payment occurs at a time when the land owner is not registered or required to be registered for GST;
- e.
- The GST payable by the land owner on its sale of the residential premises is calculated correctly under the margin scheme in Division 75 of the GST Act; and
- f.
- The anti-avoidance provisions of Division 165 of the GST Act apply, as the arrangement appears artificial and contrived in its design and execution.
The Tax Office is currently reviewing these arrangements.
Amendment history
| Date of amendment | Comment |
|---|---|
| 3 May 2024 | Updated Tax Agent tip off hotline number |
| 19 January 2024 | Updated ATO tip-off hotline numbers |
Date of Issue: 17 February 2009
Date of Effect: 17 February 2009
Related Practice Statements:
PS LA 2008/15 - Taxpayer Alerts
Subject References:
Goods and Services Tax
Creditable acquisition
Pre-GST land
Margin scheme
Residential premises
GST registration
Associate
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
Division 11
Division 23
29-5
29-10
Division 75
Division 165
Division 188
Stephanie Martin
Deputy Commissioner
| Contact Officer: | Karen Woodward |
| Business Line: | GST |
| Section: | Aggressive Tax Planning |
| Phone: | 03 927 54305 |
| Date: | Version: | |
| 17 February 2009 | Original alert | |
| 19 January 2024 | Updated alert | |
| You are here | 3 May 2024 | Updated alert |