Another GST question

[MTR]

Have 3 villas to be completed in January 2015.

Considering selling 1 and holding 2.

Friend in similar scenario however she is holding all of her villas - her accountant advised to claim all GST on completion and if end up selling any of the remaining villas before 5 year cut off just repay tax man at that time. Is this legal??

MTR

 

[oc1]

Have 3 villas to be completed in January 2015.

Considering selling 1 and holding 2.

Friend in similar scenario however she is holding all of her villas - her accountant advised to claim all GST on completion and if end up selling any of the remaining villas before 5 year cut off just repay tax man at that time. Is this legal??

MTR

NO! Why are so many accountants so clueless when it comes to GST?

 

[MTR]

Yes, your right, really did not make sense to me, basically you are claiming GST and then holding all the stock, nice if you could, but who wears it when you are audited, wont be the accountant that is for sure.

 

[Propertunity]

This goes back to "intention". If it was your intention to sell on completion, then you claim GST credits during the construction. If it was your intention to hold for 5 years as rentals, then you don't claim GST credits during the construction.

The area becomes misty, when you build with the intent to sell, claim GST credits on construction, but because of say, market conditions at the time of completion, you end up holding........this is when you get the scenario you described.

 

[Paul@PFI]

Have 3 villas to be completed in January 2015.

Considering selling 1 and holding 2.

Friend in similar scenario however she is holding all of her villas - her accountant advised to claim all GST on completion and if end up selling any of the remaining villas before 5 year cut off just repay tax man at that time. Is this legal??

MTR

No. Its asking for penalties too. One of the peculiarities about GST being a simple tax is - that it isn't simple. She should be recording and identifying the GST she has incurred. This is because the clock ticks for GST and selling within the first 5 years can impose GST on the sale.

Its a common mistake and easily detected. The ATO audit this very closely and impose penalties. She may also fall for the trap of selling within a few years and GST may (or may not) apply to the sale at that time.

GST can only be claimed by an enterprise that intends to sell WHEN the sale is known. OTP builders can claim it up front. Otherwise its normal to account for the GST AND apportion it to each villa. As and when they are sold GST applies to the sale. Usually you would use the margin scheme to reduce the GST too. I would bet $$$ that the words "margin scheme" will be foreign to her also. So she may overpay GST. . If you do then a adjustment can also be claimed for the GST on the build at the same time. Often it means little GST is actually due.

Also her costs will be all wrong. When GST isn't claimed the cost that is tax deductible INCLUDES GST. So her deductions and costs used to work out profit may be affected. This is a mugs mistake.

The world of property investor / developer taxes is wide and its just as foolish to overpay GST and other taxes as much as it is to underpay taxes.

 

[Paul@PFI]

Yes, your right, really did not make sense to me, basically you are claiming GST and then holding all the stock, nice if you could, but who wears it when you are audited, wont be the accountant that is for sure.

Actually under the Tax Practitioners Board regime it may well be the accountant who foots the penalties and interest if that is their advice. But verbal advice is worth squat. The tax agent will just say "I didnt say that"". The TPB can impose sanctions / penalties on the accountant. The tax adviser has mandatory PI insurance for this reason.

The taxpayer would likely be assessed and have to argue to point.

The ATO review GST on heaps of sales for this reason. They can ping a legit claim for a small issue and they find heaps of errors made. Like claiming GST up front....Its easy. Your friend lodges a BAS and claims a refund. They know she is a property developer from when the ABN was applied for. They do a record review and check ALL the tax invoices - They see its a build. The see GST claimed but not paid. Red flag time. They ask for ALL the sales contracts. You don't have any ??? Amendment time !!

 

[Paul@PFI]

This goes back to "intention". If it was your intention to sell on completion, then you claim GST credits during the construction. If it was your intention to hold for 5 years as rentals, then you don't claim GST credits during the construction.

The area becomes misty, when you build with the intent to sell, claim GST credits on construction, but because of say, market conditions at the time of completion, you end up holding........this is when you get the scenario you described.

Wrong. Intention is irrelevant for GST being claimed. If you intend to rent you wouldn't have an ABN (MT 2006/1) and certainly wouldn't be registered for GST. So perhaps fraud was intended ??

GSTR 2009/4 explains all.

 

[MTR]

Thanks once again for the help Paul and everyone else, learning a lot here and really its just common sense and don't screw with the ATO.

MTR

 

[sanj]

where are all these idiot accountants coming from and how are they still in business?

 

[D.T.]

where are all these idiot accountants coming from and how are they still in business?

Because their clients judge their advice based on which gives best return rather than on which is correct.

 

[Terry_w]

Because their clients judge their advice based on which gives best return rather than on which is correct.

That is it in a nutshell! With some clients with tax whichever tax agent can get them the most back will be chosen - whether the deductions are lawful or not. Some people even know what they claim is not allowable but they can blame the tax agent if something happens!

 

[Scott No Mates]

If you intend to rent you wouldn't have an ABN (MT 2006/1) and certainly wouldn't be registered for GST. So perhaps fraud was intended ??

GSTR 2009/4 explains all.

In many cases the owners would have been gst registered Paul especially if they have a mix of assets or other operations operating within the same entity.

 

[Paul@PFI]

In many cases the owners would have been gst registered Paul especially if they have a mix of assets or other operations operating within the same entity.

That's even worse. Typically a ABN relates to the enterprise (ie an activity). An ABN never relates to an entity...Novice small business DIY mistake no#1 is the assume that the whole of the entity operations are unde an ABN. You can paint yourself into a GST corner. An entity can operate more than one enterprise I agree. But its VERY unwise to deal with developing and then blend with other enterprises.

Asset protection failure.

 

[Paul@PFI]

That is it in a nutshell! With some clients with tax whichever tax agent can get them the most back will be chosen - whether the deductions are lawful or not. Some people even know what they claim is not allowable but they can blame the tax agent if something happens!

Yep. And some of them actively search for the dumbo who will do it no questions asked. (Gary loves that word.) Tax shoppers I call them. I have had some appear in my office with a return from another agent and seek a second opinion. Reality is they haven't paid them either. They get demanding and expect me to explain why I'm right. They have tunnel vision. That an alarm bell to me and ethically I wont even touch it.

 

[Propertunity]

Wrong. Intention is irrelevant for GST being claimed. If you intend to rent you wouldn't have an ABN (MT 2006/1) and certainly wouldn't be registered for GST. So perhaps fraud was intended ??

GSTR 2009/4 explains all.

Thanks Paul. That's what I get for ringing the Tax Office and getting verbal advice (which I've done specifically in relation tho this very issue in the past).
Cheers,

 

[D.T.]

Never ask the devil how much $ souls are going for

 

[perthguy]

That is it in a nutshell! With some clients with tax whichever tax agent can get them the most back will be chosen - whether the deductions are lawful or not. Some people even know what they claim is not allowable but they can blame the tax agent if something happens!

That's interesting. I once got extensive advice from a reputable specialist tax accountant in Perth who was recommended to me by a number of people. I was not comfortable with that advice and sought a second opinion from another specialist tax accountant who I know is very experienced. The advice I got was that I could do those things advised by accountant 1 but accountant 2 outlined the risks, reasons I should consider about why I may choose not to follow that advice, risks if I did go that way and alternatives. I felt a lot more comfortable with the advice of accountant 2, even though it meant less back at tax time. I don't regret the decisions that I made. It worked out well for me.

 

[willair]

That an alarm bell to me and ethically I wont even touch it.

Our first Accountant that now is passed away used to say to me a few times over a 20 year period,some people will thanks you in many different ways for what you did for them,will others will blame you try and use legal terms for what you did not do for them,after all you are one that signs the tax return not me..

 

[Paul@PFI]

Thanks Paul. That's what I get for ringing the Tax Office and getting verbal advice (which I've done specifically in relation tho this very issue in the past).
Cheers,

The ATO does NOT give verbal advice. It has enquiry lines that are manned by unskilled people. They can refer to specialist areas who will always indicate their view but its not binding or enforceable. It usually impossible to describe the precise details of every issue anyway so their view is very general. Unless you hold a ruling in writing your phone call means nothing. Its good for simple fact based outcomes as its free. But the ATO don't even consider it a defence to mitigate penalties.

Even a private ruling can be torn up if a single fact is incorrect or the "scheme" does not comply in every minor detail.

Obtaining personal tax advice from a legal or tax adviser is an accepted way to argue you did not act recklessly.