Goods & Services Tax – “GST”

We are thoroughly experienced in all facets of commercial property settlements. GST may be involved with commercial transactions. Vicki Philipoff Settlements identifies the relevant GST clause in accordance with the Joint Form of General Conditions for the Sale of Land.

See Clause 18 below pertaining to GST- extracted from the Joint Form of General Conditions for the Sale of Land

Real Estate Property Transactions

18. GST

  1. 18.1 When Purchase Price does not include GST
    1. unless otherwise expressly stated in the Contract the Purchase Price does not include GST
    2. Without affecting subclause (a), the Buyer is not required to pay to the Seller GST on the Purchase Price at Settlement unless otherwise expressly provided in the Contract
  2. 18.2 Margin Scheme
    Unless otherwise expressly provided in the Contract, the Seller must not apply the Margin Scheme in respect to the sale of the Property
  3. 18.3 When GST is to be paid on the Purchase Price
    1. If the Contract provides that GST must be paid on the Purchase Price, the following provisions will apply
    2. On Settlement
      1. The Buyer must in addition to the Purchase Price pay the GST on the Purchase Price and any other consideration payable under the Contract; and
      2. the Seller must provide a Tax Invoice to the Buyer

18.4 GST on Damages

  1. If
    1. a Successful party becomes entitles to damages as a result of default under the Contract; and
    2. the Successful party is liable to pay GST on the damages,The payment party must pay to the Successful Party the GST payable by the Successful party on the damages at the same time as the Payment Party must pay the damages to the Successful Party
    3. If subclause (a) applies, the Successful party must, on payment of the damages, provide a Tax Invoice to the Payment Party
    4. The provisions of this clause apply whether or not GST is payable on Purchase Price
  1. In addition, we always check to see if the seller is actually registered for GST, as this will effect the sale contract for their property. A FREE quick search at www.abr.gov.au will reveal if the seller is properly registered for GST and whether they are actually entitled to receive the GST from the buyer at settlement.

Basic Principles of GST

There are 4 essential elements of a taxable supply when dealing with GST and property:

  1. a supply for consideration;
  2. in the course and furtherance of an enterprise;
  3. the supply is connected to Australia; and
  4. the entity making the supply is registered for GST

The 4th element is the most crucial for considering whether or not GST applies to a sale

Seller must have an ABN and be registered for GST and is therefore able to charge

GST Liability & Payment

The seller is responsible for payment of GST

Whilst seller may be able to recover GST from buyer by selling property plus GST or inclusive of GST, the seller is the entity supplying the property

If GST is not dealt with correctly, it is the seller that ATO will pursue

GST is paid to seller on settlement and it is seller’s responsibility to remit GST to ATO

For the buyer to claim an input tax credit for the GST paid in addition to or included in the purchase price, buyer must:

  1. be registered for GST; and
  2. hold a valid tax invoice issued by seller

Establish Owner of Property

Need to establish which “entity” owns the property

Registered proprietors may hold property as trustee for a trust, a super fund or joint venture Ask whether the property is held by the registered proprietor as trustee for a trust and request ABN of the ultimate owner so you can check their GST registration

ABN & GST Registration – Ability to claim GST

An entity (individual, company or trust) can obtain an ABN, however the entity may not be registered for GST

If no ABN then entity cannot register for GST nor charge GST

If entity has ABN but is not registered for GST then they cannot charge GST

In order to charge GST on the supply of a property, the entity must have an ABN and be registered for GST

Simple Search to Determine ABN or GST Registration

Go to website, www.abr.business.gov.au

Type in preferably ABN number of entity, or name of entity

The search will reveal whether or not the entity is registered for GST

Again, be wary registered proprietor may be holding property in trust, so you need to ask the question of your client & search under the ABN of the true entity

GST & Residential Sales

In most residential sales GST is not an issue (there is no mention of it in the contract)

Clients that regularly buy & sell residential properties may need to consider the application of GST to avoid any issues arising in the future

When dealing with clients as these, you should advise them to address the GST matter with their accountant

GST & Sales of Vacant Land & Commercial Sales

Sale of residential vacant land – In most circumstances a developer will have done their research into the application of GST

Sale of commercial, industrial or retail properties and land (eg. Shops, offices, factories, warehouses, vacant land etc), GST can be dealt with in a number of ways – care needs to be taken

Going Concern Provisions

For these provisions to apply, the seller must be registered for GST
The buyers registration does not appear to affect the application of these provisions

Be wary of any conditions to the contract where the buyer undertakes to ensure they are registered for GST prior to settlement

If such condition was applicable, buyer would have to be registered for GST prior to settlement

Margin Scheme Provisions

In most circumstances GST paid under this scheme cannot be claimed as an input tax credit by the buyer

Seller has no obligation to provide a tax invoice

If GST is to be paid by buyer in addition to purchase price, seller must provide details of the amount of GST and how it has been calculated

If GST is included in purchase price, it may not be necessary for seller to provide details of the amount & calculation

Transfer Duty Considerations

If GST is payable in addition to the purchase price, then Transfer Duty will be charged on the GST inclusive price

Add the GST amount to the purchase price, then work out Transfer Duty on total price

Circular 65 from OSR outlines what information is required for instances where contracts refer to GST, yet GST is in fact not applicable (ie. seller is not registered for GST and as such is not able to charge GST)

Revenue Ruling SD29 & Circular 65 is attached

Revenue Ruling SD29 | Circular 65

Identifying GST

There are a number of ways GST can be shown on a contract

If seller & buyer are both registered for GST then purchase price should be shown as plus GST – buyer then claims a tax input credit

If only seller is registered for GST, purchase price should be shown as GST inclusive, as the buyer is not actually paying gst (although it’s included in the price). Seller can claim their GST back via relevant method

If GST is applicable, the method of calculation must always be stated on the contract. If the contract is not written correctly, then issues may arise for one or all parties concerned. Refer to condition 4 of REIWA Offer & Acceptance.

Examples:

  1. Purchase price $770,000.00 inclusive of GST
    1. Contract simply shows purchase price as $770,000.00 inc of GST
    2. In this example, purchase price is $700,000.00 plus $70,000.00 GST
    3. Contract must also then state how the GST has been calculated
    4. If this is not shown, then clarification must be obtained prior to settlement taking place
  2. Purchase price $700,000.00 + GST, see Annexure A
    1. Annexure A states property is supplied as a going concern therefore no GST applies
    2. Refer to requirements under OSR Circular 65 to enable Transfer Duty to be assessed at GST exclusive price
  3. Purchase price $700,000.00 + GST, see Annexure A
    1. Annexure A states that margin scheme applies
    2. Seller must arrange valuation and provide calculation for GST
    3. Example of calculation:
      1. Property value @ 1.7.2000 = $650,000.00
      2. Property value when sold in 2005 = $700,000.00
      3. Margin is difference between sale price and the valuation in 2000
      4. GST is 1/11th of $50,000.00 = $4,545.45
      5. Total purchase price = $704,545.45
  4. Purchase price $700,000.00 + GST, no Annexure
    1. Method of GST has not been shown
    2. Recommend client seeks legal/accounting advice and clarify GST method prior to settlement taking place

REIWA GST Annexure & Joint Form of General Conditions

REIWA standard annexure is rather straight forward.

Annexure to be attached to Offer and Acceptance Contract and a special condition noted on the Contract. Relevant choice to be selected and signed. Other 3 choices should be deleted.

JFGC – Condition 18 – rather straight forward – The provisions of this condition applies to all contracts unless otherwise expressly stated in the contract

Tax Invoices

If GST is being paid at settlement, seller must provide tax invoice to buyer, unless margin scheme applies

Tax invoice to be provided to buyer prior to settlement

Tax invoice should contain the following minimum information:

  1. must be titled “Tax Invoice”
  2. name of seller/entity selling property
  3. entity’s ABN
  4. address of property being purchased
  5. buyer’s details (ensure they are correct, ie. in case of trustee etc)
  6. purchase price
  7. gst payable
  8. the total amount payable

General

This information has been gleaned from several sources.

Any information contained herewith is our interpretation of information and is opinion based only and is not to be taken as legal or accounting advice

Sales representatives and Settlement Representatives should always recommend to their clients to seek accounting and/or legal advice in regards to GST before entering into any Contracts