The AAT has held that 4 properties sold by a taxpayer (a sole trader property developer) were new residential premises and therefore subject to GST.
The taxpayer was registered for GST bought each of the 4 properties under the margin scheme and built residences on each of them for the purposes of sale. She did not claim input tax credits for the construction.
She rented each of the properties to a variety of tenants before selling them. She claimed that the sale of the residences she built were not taxable because of the ‘5 year rule’ in s40-75 of the GST Act. She thought it was enough that the residences were all at least 5 years old when sold and had been rented out. But the Tribunal pointed out this is not enough and the carve out did not apply because they hadn’t been rented for the requisite 5 years.
The taxpayer then tried to reduce the GST on the sale by applying the margin scheme. Despite being eligible to apply the margin scheme under s75-5(3)(a) of the GST Act (because she bought under the margin scheme), she failed on this too, because she did not have written agreements from any of her purchasers that the margin scheme would apply to the sale (which is a requirement under s75-5(1)). The Commissioner even gave her additional time to get the written agreement of the purchasers but she failed to get any.
This left the sales fully taxable as ‘new residential premises’. She was allowed about 80% of the GST in her constructions costs as input tax credits (the balance being allocated to the non-creditable purpose of making the ‘input taxed’ rental supplies). The remaining expenses related to renting the premises and were not creditable at all because those supplies were input taxed.
This left her with net GST to pay. The Commissioner imposed a 25% penalty for not using reasonable care in the preparation of her returns, which the Tribunal did not reduce.
(Re FKYL and FCT [2016] AATA 810, AAT, File No: 2015/4756, Fice SM, 14 October 2016.)
[FJM] [LTN 201, 18/10/16] [Sievers]
Extract from s75-5 of the GST Act – When ‘margin scheme’ applies
1) The * margin scheme applies in working out the amount of GST on a * taxable supply of * real property that you make by:
(a) selling a freehold interest in land; or
…
if you and the * recipient of the supply have agreed in writing that the margin scheme is to apply.
(2) However, the * margin scheme does not apply if you acquired the entire freehold interest, * stratum unit or * long-term lease through a supply that was * ineligible for the margin scheme.
(3) A supply is ineligible for the margin scheme if:
(a) it is a * taxable supply on which the GST was worked out without applying the * margin scheme; or
(b) …