Private ruling: Sale of property
Published: December 2012
Ruling period: Not applicable in this case.
Date scheme commenced: Not applicable in this case

Ruling: Q1: 1. Can the Company record, for GST purposes, the sales of the town houses to individual purchasers as supplies made by the Company? 2. If not, how should the sales and transfers of the properties be treated for GST purposes? | A1: 1. No. The Company cannot record, for GST purposes, the sales of the town houses to individual purchasers as supplies made by the Company. 2. See below.

Relevant facts and circumstances: · You (also referred to as the Company) are registered for the goods and services tax (GST). The Company is carrying on an enterprise of property development. · There is only one director of the Company (Mr/Mrs X). He/She is also registered for the GST in his/her personal capacity. · Mr/Mrs X is registered for the GST from 1 April 2012. · The Company purchased land with a house on it from an unregistered entity in September 2010. · The property is in Australia. · You inform us that the supply 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 four 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 in November 2011. · The Company entered into contracts of sale for the four town houses with individual purchasers. · The contracts of sale indicated 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. · On 1 December 2011 the Company transferred the title of the land to Mr/Mrs X for a sum less than the purchase price of the land and Mr/Mrs X paid Stamp Duty on this lesser amount. By virtue of this transfer, Mr/Mrs X, in his/her 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 Mr/Mrs X. · The sale to Mr/Mrs X was not treated as a taxable supply by the Company and the Company did not remit GST on the supply. · Although the land was transferred to Mr/Mrs X, the Company continued to carry on with the construction of the town houses and to claim input tax credits on the acquisitions. · Mr/Mrs X did not have a written agreement with the Company for the Company to complete the construction of the town houses. · Mr/Mrs X subdivided the land to make the four town houses separate properties. · The settlement of the properties occurred in September 2012. · At the date of settlement Mr/Mrs X transferred the subdivided properties with the town houses to the individual purchasers at the prices that were shown in the contracts of sale 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: Detailed Reasoning - Recording the sales: For GST purposes, you can only record the supplies you make. In this case you supplied the property to Mrs/Mrs X and it was Mrs/Mrs X who supplied it in turn to the individual purchasers of the townhouses. As you have not supplied the property to the individual suppliers, you cannot record those sales in your GST returns. However, you must record the supply you made to Mr/Mrs X. The facts of this case show that the supply you made satisfies the requirements of a taxable supply and therefore you are required to remit 1/11 th of the consideration to the Tax Office as GST. | Detailed Reasoning - Consideration: You supplied the property to Mr/Mrs X who is an associate for a sum less than the purchased price. In addition, you made improvements to the property by way of constructing town houses. Thus the value of the taxable supply you made to Mr/Mrs X may be for inadequate consideration. Subsection 72-70(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states: If a supply to your *associate for *consideration that is less than the *GST inclusive market value is a *taxable supply, its value is the *GST exclusive market value of the supply. (Asterisked terms are defined in section 195-5 of the GST Act) However, under subsection 72-70(2) of the GST Act, the above subsection does not apply if your associate is registered or required to be registered and the associate acquires the thing solely for a creditable purpose. The facts of the case show that Mr/Mrs X, your associate, was not registered for the GST at the time you supplied the property to him. Further, there is no evidence to show that your associate, Mr/Mrs X, acquired the property for a creditable purpose at that time. Thus the property you supplied to your associate, Mr/Mrs X, may have been supplied for inadequate consideration. You are therefore required to obtain the GST exclusive market value of the property you supplied and remit 10% of that value to the Tax Office as GST. | Detailed Reasoning - Input Tax Credits: You state that you claimed input tax credits on the construction of the town houses after you supplied the property to Mr/Mrs X. You further state that you had no contract with Mr/Mrs X to carry out this work. 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 constitute a creditable acquisition. According to this section, you make a creditable acquisition if, among other things, you acquire anything solely or partly for a creditable purpose. Meaning of creditable purpose is given in section 11-15 of the GST Act. Subsection 11-15(1) of the GST Act states that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. You supplied the property in December 2011 to Mr/Mrs X and you had no contract with him to continue the construction work after that date. Therefore, any acquisitions you made in respect of the construction work you carried on after 1 December 2011 would not be for partly or solely for a creditable purpose because such acquisitions are not made for carrying on your enterprise. Therefore you cannot claim input tax credits for any acquisitions you made in developing the property after you supplied the property to Mr/Mrs X. You are required to make corrections in your activity statements to reverse such input tax credits. Penalties may apply for incorrectly claiming input tax credits.

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