Long settlement

[belleran]

I am selling newly built units which are still in the process of being stratatitled. I am selling one this financial year and wanting to sell the next one July 2014 to help with tax. I am getting off the plan contracts drawn up. I am marketing both at the same time.
My RE has suggested I double check to make sure that it is alright to have a contract dated this financial year but have a long settlement date of July 1 2014. Does anyone know the answer to that question?

 

[Aaron_C]

There's nothing wrong with that.......but CGT will be payable for this FY.

 

[marg4000]

As Aaron said, CGT is assessed on the contract date, not the settlement date.

If spreading out CGT is the aim, then be careful when you sign the contract.
Marg

 

[Rob G.]

As Aaron said, CGT is assessed on the contract date, not the settlement date.

If spreading out CGT is the aim, then be careful when you sign the contract.
Marg

Capital gains are reduced to the extent that it is assessable income from a business or a commercial transaction for profit.

If the buildings are not trading stock but rather a commercial profit transaction then a profit/loss accounting may be appropriate on a profits emerging basis.

Better get a lawyer to draft up any GST clause, and ask a tax agent about the GST timing.

So ... in summary your question cannot be answered until you clarify your circumstances.

 

[Paul@PFI]

Are you sure its a capital gain and not just revenue? Many sellers of property jump to this conclusion and it can leave them exposed to a tax debt of magnitude. Did you get tax advice in respect of the sales being a capital gain and if GST impacts on these sales ? In that respect did you claim any GST on the construct ? Are your required to be registered ?

The ATO have a very vigilant process for review of (newly constructed) real property sales to match sellers ABN's (or those without an ABN !!) and your posting history indicates this may or may not be a one off sale. My curiosity is aroused by you asking the long settlement question before.

 

[belleran]

Didn't realise I had asked about long settlement before.
Not registered for GST but might need to be if I sold the second unit this financial year
My accountant has me sorted. I am not a 'developer' and we usually work with the 50% CGT methold. It is not CGT I am concerned about as we will have held the land for over 12 mths but wanting to make sure that if I receive the proceeds of the sale in 2015 tax year it will be part of my assessable income for that year and not 2014 tax year because the contract was entered into then.

 

[HD_ACE]

Didn't realise I had asked about long settlement before.
Not registered for GST but might need to be if I sold the second unit this financial year
My accountant has me sorted. I am not a 'developer' and we usually work with the 50% CGT methold. It is not CGT I am concerned about as we will have held the land for over 12 mths but wanting to make sure that if I receive the proceeds of the sale in 2015 tax year it will be part of my assessable income for that year and not 2014 tax year because the contract was entered into then.

This word indicates that you have done this before, which means you could/probably will be classed as a developer therefore you will pay income tax on all profit and cgt wont apply so no 50% discount for holding over 12 months.
Plus gst may apply if selling new stock.

The date of contract signing will determine what financial year you pay the tax for the sale.

Make sure you get proper advice on where you sit with this all before it costs you a fortune.

Cheers

 

[Rob G.]

Not registered for GST but might need to be if I sold the second unit this financial year

Sounds like dealing in new residential premises for GST purposes.

GST registration requires consideration of projected turnover for next 12 months. Take a look at Re Day and FCT AATA 300 as an example of this minor oversight !

This is gross turnover.

GST may apply even if you are "not a developer" for income tax purposes and are subject to CGT.

GST does not use the same timing rules as CGT.

However, I suppose your accountant has more information to help make an informed decision.

 

[wylie]

If we build a house (or two) in the back yards of IPs we currently hold, would we be classed in any way as developers, or have to be worried about GST?

We would be entering into a contract with a builder to build these.

Our plan would be long term hold, and we would only sell if we needed to clear debt or got into financial strife.

 

[jrc]

The important thing is that Belleran is obviously able to build and sell units for less than $37,500 each. No wonder Belleran doesn't have any tax issues - Belleran must be a charitable entity. I'm happy to purchase two units each year from you at a total price of $74,999 - make the settlements as long as you like.

Belleran you have had two very experienced accountants raise questions about the advice you have been getting. At the very least you should seek a second opinion from another firmof accountants preferably experienced in property development and GST and give them allthe facts not just that you'vebuilt two units and are intending to sell them, but a history of your dealings in land and construction. I hope for your sake that your current accountant has committed his advice to you in writing.

Australian tax operates on a self-assesment regime which doesn't mean you can choose whether or not to pay tax and how much - instead the onus is on you to get it right.

Wylie, since your intention is long term hold you are probably OK unless there is a history of building/ renovating and selling.

 

[belleran]

Not sure I said I didn't have any tax issues.
You are right you would all need to know a lot more about my circumstances and history to be able to advise on this question. I have emailed my accountant already to arrange another appt.

 

[Paul@PFI]

If we build a house (or two) in the back yards of IPs we currently hold, would we be classed in any way as developers, or have to be worried about GST?

We would be entering into a contract with a builder to build these.

Our plan would be long term hold, and we would only sell if we needed to clear debt or got into financial strife.

Read TD 92/124...
* A one-off acquisition (it doesnt need to be repetitive) acquired for the purpose of deve, subdiv & sale leads to land being trading stock. I question if you propose to sell. Doesnt seem the case..If you dont intend to sell you are not likely to be a developer.
* You can be a developer for one and capital for the other !! eg You build on both and quickly sell one. More likely to be revenue than capital.
* Selling new resi property which triggers the GST threshold can require GST registration. Doesnt seem likely at this point. Later it may. The key event is selling resi property for the first time as it triggers the GST threshold test. In 3 years if you sell you need to review it again. There are time periods that apply to "new" resi property too. I had a (builder) client who built a block. He sold 80% and kept 20% for several years. When he later sold those other units he had to collect and remit GST on each sale less the input tax credits on the build for each unit. They rose in value as did the GST !

 

[Aaron_C]

So it is just safer to register for GST on every acquisition?

 

[belleran]

I have spoken with my accountant and he has confirmed what Aaron and Marg have said that it is the contract date that is important.
In regard to the other comments we are not registered for GST and are not running a business - just realising an asset.

 

[jrc]

A business can involve a single transaction for tax purposes. Get a second opinion from someone else.

 

[Terry_w]

In regard to the other comments we are not registered for GST and are not running a business - just realising an asset.

See above!

 

[Rob G.]

I have spoken with my accountant and he has confirmed what Aaron and Marg have said that it is the contract date that is important.
In regard to the other comments we are not registered for GST and are not running a business - just realising an asset.

Touram Pty Ltd (as Trustee for the GKA Family Trust) v FCT (2008) ATC 10-070, 216

Vendor of a vacant block of land made a taxable supply despite not being a business.

They were carrying on an enterprise by virtue of acquiring vacant land as an investment hoping to make a capital gain. They did not even build on it, only some rezoning to make the land more desirable. The Tribunal focused on a profit intention.

What was your intention in acquiring the property ?

Assertions of subjective opinion have no weight without objective facts. e.g. evidence of investment consultations, history of buying & selling, etc.

"Enterprise" is a GST concept that does not necessarily align well with other tax and revenue laws.

I am sure your accountant has all your relevant facts to make an informed opinion of your intention that would stand up to ATO scrutiny. However, the facts given in the thread do not permit such a conclusion.

 

[belleran]

Thank you all for your warnings and help. My accountant has now changed his tune so we are now registered for gst and operating as a developers. I feel much better knowing we are well within the law and not travelling close to the line.

 

[jrc]

Thanks for the update Belleran and kudos to you for taking on board some of the excellent advice that is available on this forum. Rob G and Paul@PFI freely provide great information.