ATO ID 2004/833: GST and its calculation for construction agreements made before 1 July 2000
Date of decision: 25 August 2004
Business line: Indirect Tax

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
Summary: 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
Related public rulings and determinations: Goods and Services Tax Ruling GSTR 2000/14
Subject references: Goods and services tax GST property & construction GST transitional issues Special transitional rules