Taxpayer Alert TA 2004/6: Use of the Grouping provisions of the GST Act to avoid Goods and Services Tax (GST) on the sale of new residential premises
Date of issue: 7 April 2004
Status: Current


Description: This Taxpayer Alert describes an arrangement that uses the grouping provisions in an attempt to avoid GST on the sale of new residential premises. The parties to the arrangement use a GST group structure for the purposes of creating an 'internal sale' of new home units/houses between GST group members. This is to support a claim that the units/houses are no longer 'new residential premises'. On this basis, any subsequent sale of the residential units/houses is claimed to be input taxed and not subject to GST. | The alert applies to arrangements that exhibit some or all of the following features: 1. Two or more entities apply for approval as a GST group, or are currently members of a GST group. The entities may be new or existing. 2. A group member owns or acquires land and constructs or arranges the construction of residential units/houses on the land. 3. The group member sells the units/houses to another group member without levying GST. (A supply between GST group members is treated as if it were not a taxable supply). 4. The acquiring group member sells the units/houses to third parties, and treats the sales as input taxed for GST purposes. The sale is claimed not to be that of "new residential premises", having previously been sold within the group. (Supplies of new residential premises are taxable supplies). 5. Despite the acquiring group member treating the sale of the units/houses to third parties as input taxed, the GST group claims input tax credits on the costs of constructing the units/houses and/or the acquisition of the land. | 1. Two or more entities apply for approval as a GST group, or are currently members of a GST group. The entities may be new or existing. 2. A group member owns or acquires land and constructs or arranges the construction of residential units/houses on the land. 3. The group member sells the units/houses to another group member without levying GST. (A supply between GST group members is treated as if it were not a taxable supply). 4. The acquiring group member sells the units/houses to third parties, and treats the sales as input taxed for GST purposes. The sale is claimed not to be that of "new residential premises", having previously been sold within the group. (Supplies of new residential premises are taxable supplies). 5. Despite the acquiring group member treating the sale of the units/houses to third parties as input taxed, the GST group claims input tax credits on the costs of constructing the units/houses and/or the acquisition of the land. | The ATO considers that the arrangements outlined above give rise to taxation issues that include whether the: (a) sale of the new home units/houses within the group is the first sale of residential premises; (b) sale of real property within the group is a taxable supply despite the operation of subsection 48-40(2); (c) GST group representative is entitled to input tax credits on the costs of construction and/or the acquisition of the land; and (d) anti-avoidance provisions of Division 165 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act') apply, as the arrangements appear artificial and contrived in their design and execution. | (a) sale of the new home units/houses within the group is the first sale of residential premises; (b) sale of real property within the group is a taxable supply despite the operation of subsection 48-40(2); (c) GST group representative is entitled to input tax credits on the costs of construction and/or the acquisition of the land; and (d) anti-avoidance provisions of Division 165 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act') apply, as the arrangements appear artificial and contrived in their design and execution. | The Australian Taxation Office is examining these arrangements.





Related documents: GSTR 2005/4. | PS LA 2008/15 | GST Act Division 165 | GST Act Division 48 | GST Act Division 9 | GST Regulation 48 | TA 2004/2

ILEC - Aggressive Tax Planning Team