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Read this on another forum. Any comments?
GST draft houses vendor shocks
Jun 21
Robert Harley
Old blocks, now one title but intended for strata title and on-sale, will
be
GST-liable.
Planning to subdivide your home and sell off the back half? Think again. If
the Australian Taxation Office believes your motive is profit, you might
become liable for GST when you eventually sell the original home.
Yesterday the ATO released another long-awaited draft GST ruling. This time
the issue was how to determine when a residential property would be
regarded
as new - and, therefore, subject to GST - or second-hand and GST-free.
Take a deep breath. There are some shocks in here. Under these rules the
change of title on residential real estate creates a "new", and GST-liable,
property whether any new work has been done or not.
One type of property caught in the net will be old blocks of flats
currently
on one title but intended to be strata-titled and onsold.
According to this ruling: "Where the title to the property is replaced by a
separate title for each flat or unit under a strata title subdivision, each
strata titled lot or unit, when sold for the first time after subdivision,
will be a sale of new residential premises as the separate lot or unit has
not been previously sold as residential premises."
Other cases affected would include the subdivided suburban block, the grand
old home cut up into new units and, potentially, even blocks where the
title
is changed marginally to take in a new strip of land.
It is the line the Housing Industry Association, which represents the
new-house industry, has been pushing for some time.
But an associate partner at Adelaide legal firm Thomson Playford, Lachlan
Wolfers, said the ruling turned the law upside down.
"The policy was to catch things that are new. This is capturing things that
are not new," he said.
"This approach has already been rejected by the higher courts in cases like
Moruben Gardens Pty Ltd v The Federal Commissioner of Tax, 1972, where the
court was not concerned with the change in legal title but whether the
underlying property had changed.
"When selling these properties, vendors face both capital gains tax issues
and now GST issues ... This is a significant revenue grab by the Tax
Office."
If the ruling is finalised, it will apply from July 1, 2000.
The draft ruling also addresses the issue of when a renovation becomes so
substantial that the house is essentially new and subject to GST on sale.
This seems less contentious.
Under the ruling, "the renovations may, but need not, involve the removal
or
replacement of foundations, external walls, interior supporting walls,
floors, roof or staircases". A renovation of the bathroom or kitchen by
themselves, no matter how expensive the upgrade, would not be regarded as
creating a new building.
The ATO does note that the determination will be "a question of fact and
degree".
"For example, the increase in the market value of the building after the
renovations, as well as the total amount spent on renovations, are to be
considered as part of the overall facts and circumstances in determining
whether a particular building has been substantially renovated."
As a guide, a building approval, a rezoning approval or a change in council
rate classification "may be present where the renovations are substantial".
You have until August 3 to comment. Phone ATO officers Harvey Dolby on (07)
3213 5817 or Neil Jewel on (07) 3213 5793.
Read this on another forum. Any comments?
GST draft houses vendor shocks
Jun 21
Robert Harley
Old blocks, now one title but intended for strata title and on-sale, will
be
GST-liable.
Planning to subdivide your home and sell off the back half? Think again. If
the Australian Taxation Office believes your motive is profit, you might
become liable for GST when you eventually sell the original home.
Yesterday the ATO released another long-awaited draft GST ruling. This time
the issue was how to determine when a residential property would be
regarded
as new - and, therefore, subject to GST - or second-hand and GST-free.
Take a deep breath. There are some shocks in here. Under these rules the
change of title on residential real estate creates a "new", and GST-liable,
property whether any new work has been done or not.
One type of property caught in the net will be old blocks of flats
currently
on one title but intended to be strata-titled and onsold.
According to this ruling: "Where the title to the property is replaced by a
separate title for each flat or unit under a strata title subdivision, each
strata titled lot or unit, when sold for the first time after subdivision,
will be a sale of new residential premises as the separate lot or unit has
not been previously sold as residential premises."
Other cases affected would include the subdivided suburban block, the grand
old home cut up into new units and, potentially, even blocks where the
title
is changed marginally to take in a new strip of land.
It is the line the Housing Industry Association, which represents the
new-house industry, has been pushing for some time.
But an associate partner at Adelaide legal firm Thomson Playford, Lachlan
Wolfers, said the ruling turned the law upside down.
"The policy was to catch things that are new. This is capturing things that
are not new," he said.
"This approach has already been rejected by the higher courts in cases like
Moruben Gardens Pty Ltd v The Federal Commissioner of Tax, 1972, where the
court was not concerned with the change in legal title but whether the
underlying property had changed.
"When selling these properties, vendors face both capital gains tax issues
and now GST issues ... This is a significant revenue grab by the Tax
Office."
If the ruling is finalised, it will apply from July 1, 2000.
The draft ruling also addresses the issue of when a renovation becomes so
substantial that the house is essentially new and subject to GST on sale.
This seems less contentious.
Under the ruling, "the renovations may, but need not, involve the removal
or
replacement of foundations, external walls, interior supporting walls,
floors, roof or staircases". A renovation of the bathroom or kitchen by
themselves, no matter how expensive the upgrade, would not be regarded as
creating a new building.
The ATO does note that the determination will be "a question of fact and
degree".
"For example, the increase in the market value of the building after the
renovations, as well as the total amount spent on renovations, are to be
considered as part of the overall facts and circumstances in determining
whether a particular building has been substantially renovated."
As a guide, a building approval, a rezoning approval or a change in council
rate classification "may be present where the renovations are substantial".
You have until August 3 to comment. Phone ATO officers Harvey Dolby on (07)
3213 5817 or Neil Jewel on (07) 3213 5793.
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