GST Groups?

[HanSolo]

Some background: I'm a builder and I'm doing a joint venture with another Builder. 7 Townhouses in Melbourne. The project is spread over two titles in which I own 1 and he owns the other. We will be building the townhouses jointly and splitting the profits 50/50.

Does anyone have any experience with GST Groups? It's a little confusing.

As I understand we can register our individual companies as a GST Group and not have intra-party transactions subject to GST (i.e invoicing each other for work etc, subdividing lots and transferring them to each other)

My question is what name are invoices that we pay to go under? Our individual business or a joint name?

As I understand, we would apportion the GST credits quarterly to each other and share in the liability when the townhouses are sold.

Would this have any effect on the construction work we do outside of this GST Group? I.e we are both doing other projects on the side.

Any help from you guru's would be much appreciated.

 

[jrc]

From memory if you grouped one entity is responsible for reporting and paying all the gst obligations. sounds a bit risky when you dont control all the entities in the group

 

[Paul@PFI]

https://www.ato.gov.au/business/gst...-business/gst-groups-and-branches/gst-groups/

Grouping isn't straight fwd. Individuals cant be the only members of a group - You said "he owns one". That's not strictly permitted in grouping. There must be one entity that isn't humans ... It may be the head entity. A company or trust is common.

The issue is really one of "what is the enterprise ?" Is it the JV or the members in partnership ? This must be addressed to apply for ABN etc. Normally a distinct entity (unit trust, co etc??) may operate as the enterprise and hold the ABN. The respective parties will own units (or shares if a company). The land owners pay the head entity for each "lot"when build ends and invoice and so the head entity makes the profit - Unitholders share this.

You should seek personal specific tax and legal advice and there are many issues to address covering profit taxation, fixed entitlements, asset protection and liability risks. You don't want your JV partners losses to bite your profit I'm sure.

 

[Paul@PFI]

As I understand, we would apportion the GST credits quarterly to each other and share in the liability when the townhouses are sold.

Incorrect. The ATO would take exception to this.

1. Start with who will sell the land ...It may be each "partner" since they own land.
2. So how does the partner incur build costs ?? The head entity bills them for it including profit margin. So member pays head entity.
3. So typically may look like this:

HEAD ENTITY (ABN)
/ \
/ \
JV#1 ! JV#2​

Ideally JV1 and JV2 don't want exposure to loss on the build which it trapped in the head entity. Companies make a good sacrificial entity but unit trusts can be good for fixed entitlements.

Head Co bills JV partner for build costs and an agreed price for land but NOT profit. Profit stays in head entity.

Headco is funded by each party either lending $ or subscribing to units if its a trust. Or maybe a hybrid trust with financing units that pays an agreed % return to equate to interest.

GST Group would be headco + JV1 + JV2 confined to the enterprise only that way its stand alone and doesn't impact existing building operations. So the invoice between JV and head entity is effectively nil.

Beware that you don't partition land in the JV. That can trigger GST.

There are other ways. The tax advice needs to consider the margin scheme too.

 

[HanSolo]

Thanks Paul, this is sound advice. I'll be in touch.