Building - Claiming GST credits, then keeping property?

[davea]

it still hasnt been worked out if claiming GST credits will make you unable to get the 50% exemption...

also what about interest deductible on the time of building, i know for CGT cost price, interest is capatilised for the construction period, but if you are claiming credits, it shows you want to sell and hence not rent thus means no interest deductible....

 

[JoannaK]

claiming credits does not equal intent to sell.

 

[Ausprop]

claiming credits does not equal intent to sell.

I read to the contrary, I think it is in Julia's 'how not to be a developer'... will have a look later and see if I can find it.

just thinking logically... if you don't intend to sell why would you be claiming credits?

 

[FrankGrimes]

just thinking logically... if you don't intend to sell why would you be claiming credits?

The issue is that you don't know what you're going to do.. It depends on the market at completion, rental market could be hot or the selling market could be.... Holding costs may be too great if the rental market slows (doubtful I know)... But things change, this is my issue

Then if you don't claim the GST credits and sell, you are losing a fair bit of money... No GST credits, CGT and GST!

ATO does a good job of making things complicated

 

[Ausprop]

totally agree Frank. my take on this is... the ATO considers that you must have an intention when you start out. I think they are sayng it's not good enough to just say 'i dont know'.

EOD you will need to make a call on it anyway for the way that you take it up in your books. If your intention is resale, then you will need to claim the GST and journal the build costs to your Costs Of Goods Sold and claim the interest. if it is a hold you will post it to fixed assets

 

[bram]

Hi all

I am half through building two town houses with no intention of selling, had a offer to sell one which i acceppted private sale is there a way i could claim gst credits

regards david

 

[JoannaK]

just thinking logically... if you don't intend to sell why would you be claiming credits?

Simply for the sake of your ever-important cashflow is the reason.

Bank funding, generally, is in 2 components,

one is the funding of the construction costs (exclusive of the gst) with costs accumulating and interest capitalising
the other component is the gst funding (which is like a giant revolving line of credit)

Say you get an invoice from your builder to the value of $100,000 (which the QS validates)

the construction facility will allow you to drawdown that $100,000 to pay to the builder.

the GST facility will then advance you another $10,000 for the additional GST. If the banks didn't do this then you will need to find that $10,000 from your own stash of cash. You then do your BAS, get that $10,000 back from the govt, and repay it to the bank.

It preserves your cashflow; that's all.

 

[MichaelW]

Thanks Joanna,

Your posts have been very informative as always. I tried to give you some kudos but the nasty computer says no...

Maybe a nice obliging fellow forumite can do so in my stead until I've spread the love a bit.

I hope you're right, as I'm claiming credits already through my quarterly BAS and have currently a view to hold all three. Of course, at completion I might sell one, two or maybe all three if the market explodes to dizzy unsustainable heights. As pointed out already, my decision "depends" on where the market is at upon completion. But at the outset, my intent is to hold all three. I'll be almost neutral cash flow upon completion and at a stage in the cycle where I think serious upside will be a few years off.

Cheers,
Michael.

 

[Ausprop]

Hi Joanna - I can completely understand why YOU (or anyone) would want to claim the input credits, but I believe the ATO's position would be vastly different. You can't just claim the credits to fund your cashflow and then argue that you never intended to sell

 

[bram]

Thanks Joanna for your reply

I plan to build more houses in the future,I will register for gst and claim credits
My understanding is if you claim gst and dont sell you have to pay the credits back + interest.

regards david

 

[belleran]

JohannaK,
Regarding your point 6, Where is the starting point of the five years calculated from i.e contract date for the land or final hand over date from the builder etc?
belleran

 

[belleran]

More thoughts! Do you need to register before you own the land or can you do that before you sign a contract with the builder?
belleran

 

[JoannaK]

Hi belleran,

I would take the 5 years starting from the date the Occupation Certificate was issued by the consenting authority, afterall, no one can legally occupy a property until that Certificate is issued.

I would register for GST before you actually buy the land, but you would need to clarify and seek your own advice from your accountant who knows your own circumstances.