Developer/GST payments

From: Patrick Bruadair


Hello all,
I am looking at getting involved in developing a 5 unit block (5 x d/s townhouses). GST during the construction period would cost about $85,000.00. GST payable on sales of the 5 townhouses will be about $100,000.00.
I understand I can claim back GST during the construction period if I am developing with the intention of selling. What if I decide to hold one or two townhouses as income producing properties for a few (or a lot of)years prior to selling?. Can I still claim back GST during the construction period if I end up holding for some years?.

Hope some experienced small developers on the forum can advise me on this.

Pat Bruadair
 
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Reply: 1
From: Dale Gatherum-Goss


Hi

I know that the "Taxation Institute of Australia" recently ran seminars on GST and property development. They have seminar notes that are available although they do charge a fee for this service.

Perhaps this might be an idea?

let me know if you have no luck and I'll see what I can find.

Dale
 
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Reply: 1.1
From: Manny B


I would have thought the GST is payable by the builder (unless you will be doing the subcontracting yourself) on his/her services & goods they provide...

Manny.
 
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Reply: 2
From: Joanna K


Hi Patrick,

Perhaps I can be of assistance. My husband and I are developers and =just went through all this with our accountant recently. It really is a =pain in the bum!!

GST during construction is claimed back through the normal BAS each =month/quarter.

GST calculations for the actual sales on the finished product depend =entirely on how you purchased the property in the first place.

You can purchase a property in two ways; the margin scheme or non margin =scheme.

To quickly explain, the margin scheme is basically a different way of =calculating the GST payable on the inital land purchase, for example if =the land was valued at $500,000 at 30th June, 2000 and you buy it for =$500,000 today, there was no movement in the value, therefore no GST =payable. If however, you purchased the land for $600,000, the margin is =$100,000, on which you pay GST.

GST PAID ON LAND ACQUISITIONS UNDER THE MARGIN SCHEME ARE UNABLE TO BE =CLAIMED AS INPUT CREDITS.


I have attached an two documents that I had my accountant prepare for me =(in simplistic terms) showing the GST calculations on the sale of the =finished product under the margin scheme as opposed to the non margin =scheme. The calculations are based on a 20 unit development.

Hopefully this will help you.

Kind regards
THE RENTAL SPECIALISTS

Joanna Karavasilis
Principal


(File attachment removed)
 
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Reply: 2.1
From: Joanna K



It seems as though my attachements didn't attach, so I'll see how I go =with a cut and paste. Again, I hope this helps.

Kind regards
THE RENTAL SPECIALISTS

Joanna Karavasilis
Principal



Building Development under NO Margin Scheme

Cost of Land
$1,300,000


ADD GST
$130,000
(Assuming no movement in value of land between 1/7/00 and now)

Total cost including GST (A)
$1,430,000






Development Costs
$2,700,000


ADD GST
$270,000


Total Development Cost including GST (B)
$2,970,000






Total Cost of Development (A) + (B)
$4,400,000


Less GST Credits Claimed back on BAS
($400,000)


Net Cost of Development
4,000,000






Total Sale Value of Units (GST Exclusive)
$5,300,000


ADD GST under Margin Scheme
$530,000


Total Sale Value including GST
$5,830,000






If we divide that sale value by 20 Units


Per Unit (GST Exclusive) $265,000


ADD GST $26,500


Total Cost To Buy Unit $291,500





Building Development under Margin Scheme



Cost of Land
$1,300,000


ADD GST
Nil
(Assuming no movement in value of land between 1/7/00 and =now)

Total cost including GST (A)
$1,300,000






Development Costs
$2,700,000


ADD GST
$270,000


Total Development Cost including GST (B)
$2,970,000






Total Cost of Development (A) + (B)
$4,270,000


Less GST Credits Claimed back on BAS
($270,000)


Net Cost of Development
4,000,000






Total Sale Value of Units (GST Exclusive)
$5,300,000


ADD GST under Margin Scheme
$363,636
****

Total Sale Value including GST
$5,663,636






If we divide that sale value by 20 Units


Per Unit (GST Exclusive) $265,000


ADD GST $18,182


Total Cost To Buy Unit $283,182







**** Calculation of GST under margin Scheme





Total Sale Value of Units $5,300,000


LESS: Cost of land purchased under margin scheme =($1,300,000)


Margin $4,000,000


GST on Margin ($4,000,000 / 11) $363,636
 
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Reply: 3
From: Patrick Bruadair


Thanks for the response all. My internet connection has been misbehaving, this is my fourth attempt to make another post.

Dale: I’ve been in touch with the TIA here in WA, who advise they have a paper written by Catherine Ferraris with a title something like “GST after 1st 12 Months-A Technical Review-Property Issues”. Cost is $45.00. Would this be the one you had in mind?

Joanna: I appreciate your followup cut and paste job!. It was a bit messy, but I could figure it out. My own calcs were similar in approach to the margin scheme option you outlined, so I’m pretty confident now with the numbers for a Develop and Sell strategy. My lingering question remains as to whether I can claim back GST if I decide to hold some of the units for rental. I’m setting up a meeting with an accountant next week, hopefully he has the knowledge!

Thanks

Pat
 
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Reply: 3.1
From: Dale Gatherum-Goss


Hi

yes, I'm pretty sure that's the one that I have. The seminar was about October 23rd in Melbourne and there were about 3 papers in the set. Can you just clarify with the TIA that there you want the full set of papers.

Well done, and good luck

Dale
 
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QUESTION... GST on the margin scheme ????

Reply: 2.2
From: Ross Sondergeld


Hi Everybody,


QUESTION... GST on the margin scheme !!!

Joanna said in summary, "You can purchase a property in two ways; the margin
scheme or non margin scheme. GST PAID ON LAND ACQUISITIONS UNDER THE MARGIN
SCHEME ARE UNABLE TO BE CLAIMED AS INPUT CREDITS."


Property ACCOUNTANTS !!! Is this correct ????


I talked to the ATO, a few different accountants and a few investors and
everybody had no idea how the GST works as input credits.

OK... here's my sample question. Land bought from developer for $100,000
plus GST. If the buyer elects the margin scheme, then you can claim back
$2,400 on this particular block of land. Therefore...

Price $100,000
plus GST $10,000
less Margin Scheme $2,400
= $107,600


QUESTION - Can you use the $7,600 as an input credit and use in
a years time for GST purposes, (when the property is on sold) ???



Ross Sondergeld ~ Buyer Agent

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
" Imagine buying real estate the easy way...
...with a Buyer Agent on your side!!! "

Buyerside Real Estate Mobile 0412 289 464
Office 9b, 34 Glenferrie Drive Office (07) 5562 1555
East Quay Corporate Park Fax (07) 5562 1248
Robina QLD 4226, Gold Coast Buyerside@hotmail.com
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~


_________________________________________________________________
Get your FREE download of MSN Explorer at http://explorer.msn.com/intl.asp
 
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GST for short term hold for GST purposes...

Reply: 3.2
From: Ross Sondergeld


Hye Patrick,


Patrick, "My lingering question remains as to whether I can claim back GST
if I decide to hold some of the units for rental. I’m setting up a meeting
with an accountant next week, hopefully he has the knowledge!"


Good question! I was talking to a display home investor that buys land,
builds and holds for 1 year and then on sells. (And then claims the input
tax credits!)

The ATO investigated what he was doing and couldn't prove it was illegal.

(NOTE - this is NOT TAX advice. See your accountant !!!)



Ross Sondergeld ~ Buyer Agent

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
" Imagine buying real estate the easy way...
...with a Buyer Agent on your side!!! "

Buyerside Real Estate Mobile 0412 289 464
Office 9b, 34 Glenferrie Drive Office (07) 5562 1555
East Quay Corporate Park Fax (07) 5562 1248
Robina QLD 4226, Gold Coast Buyerside@hotmail.com
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~


_________________________________________________________________
Get your FREE download of MSN Explorer at http://explorer.msn.com/intl.asp
 
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GST for short term hold for GST purposes...

Reply: 3.2.1
From: Gerard Caruana


Hi guys - the main question here is that if you hold/rent the properties, can you claim the GST credit on the land/construction. I work for a builder/developer/investor that both on sells and holds some property. The advice from consulting accountants (GST "Experts") was that you couldn't claim the credits for build and hold properties. If you started out with selling in mind, claim the credits, then decide to keep, you will have to pay back the credits.
Every situation is different so get professional advice.
 
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QUESTION... GST on the margin scheme ????

Reply: 2.2.1
From: Dale Gatherum-Goss


Hi

Before I even attempt to answer this question, I thought that you should know that the Government made 1,800 changes to the GST law in the first 12 months alone. The 2nd was heading the same way until the election was called . . .

In a nutshell, the law changes constantly and so is very hard to pin down accurately. Furthermore, as it is still a relatively new law, we have had few, if any, court cases to properly define how the law is to work.

Therefore, no-one knows the answers for sure!!

OK, with that huge disclaimer out of the way (and giving sufficiently covered my arse) I'll try my best to explain . . .

The first issue is whether you are registered for GST. If you are not registered, you cannot claim back the GST under any circumstances.

So, assuming that you are registered to collect GST, and you buy a property that the vendor says is sold under the margin scheme (please note, it is the vendor's choice, not the purchasers!!) then you cannot claim back the GST included in the sale if you plan to use the property in your business.

Yes, what I'm saying is that as a purchaser, you should not agree to the property being sold under margin scheme at all.

No doubt this will create more confusion than it solves, so I'll leave the rules for now and try to answer more as they arrive.

I hope that this helps, have fun and a great weekend!

Dale
 
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