Taxpayer Alert TA 2004/8: Use of the Going Concern provisions and the Margin Scheme to avoid or reduce the 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 involving an entity which makes a sale of substantially completed residential units/houses to another entity as a GST-free going concern. The acquiring entity completes the residential units/houses and sells them as a taxable supply to third parties, paying GST only on the margin between this sale price and its acquisition cost, which is designed to set the price to reduce or eliminate the margin for GST. | The alert applies to arrangements that exhibit some or all of the following features: 1. An entity owns or acquires land and substantially constructs, or arranges the substantial construction of, residential units/houses on the land. 2. The entity sells the substantially completed residential units/houses to another entity, which may or may not be an associate, as a GST-free going concern. 3. The acquiring entity completes, or arranges the completion of, the units/houses, and sells them as a taxable supply to third parties, applying the margin scheme to calculate the GST payable on those sales. GST is calculated only on the margin between the sale price to the third parties and the acquisition cost. 4. Both entities claim input tax credits on the costs incurred in constructing the units/houses and/or the acquisition of the land. | 1. An entity owns or acquires land and substantially constructs, or arranges the substantial construction of, residential units/houses on the land. 2. The entity sells the substantially completed residential units/houses to another entity, which may or may not be an associate, as a GST-free going concern. 3. The acquiring entity completes, or arranges the completion of, the units/houses, and sells them as a taxable supply to third parties, applying the margin scheme to calculate the GST payable on those sales. GST is calculated only on the margin between the sale price to the third parties and the acquisition cost. 4. Both entities claim input tax credits on the costs incurred in 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) supply of the substantially completed residential units/houses is the supply of a GST-free going concern; and (b) 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) supply of the substantially completed residential units/houses is the supply of a GST-free going concern; and (b) 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 2005/5. | PS LA 2008/15 | GST Act Division 165 | GST Act Subdivision 38-J | GST Act Division 72 | GST Act Division 75 | TA 2004/2 | TA 2004/6 | TA 2004/7

ILEC - Aggressive Tax Planning Team