Ideas Tax Knowledge Blog | Ideas Group (17)

GST of acquisition & sell investment property

Q: My client, who runs a childcare business as a sole trader and is registered for GST, bought land to build an investment property. Can she claim GST on the building costs? What happens if she decides to sell the property once it's built?

A: Since the investment property isn't linked to the childcare business, it's considered a separate venture. If the property will be rented out, which counts as a business activity, the question is whether the building costs can be claimed for GST.

To claim GST on the building costs, the building must be acquired for a GST-eligible purpose. This means if the client gets the building as part of her business activities, she can claim GST. But if the building is for making supplies that are exempt from GST, like renting out residential premises (like a house), then she can't claim GST on the building costs.

If she sells the building, whether GST applies depends on what kind of building it is. If it's commercial, then GST applies when she sells it. If it's residential and sold as "new residential premises," GST applies too. However, if she holds onto the building for at least five years before selling it, it's not considered "new residential premises," and GST doesn't apply when she sells it. In any case, if the building is sold as a commercial building or "new residential premises," she can claim GST on the building costs.

If you have any questions, feel free to contact Tax Ideas Accountants & Advisers at+61 2 83181545. You can also book an appointment through our live calendar.

In: Goods and Services Tax (GST)

GST for the sold of commerical property

Q: A husband and wife bought a residential property in 2011, initially leasing it out as a café. Later, they started a beauty therapy business together until they divorced in 2014. The partnership ended, and one of them continued the business as a sole trader. Now they want to sell the property, and a buyer who isn't registered for GST wants to purchase it as a residential property. What are the GST implications? Is a balancing adjustment needed, considering the partnership ended in 2014?

A: If they sell the property as a residential unit, it triggers a balancing adjustment under the GST Act. This means they need to adjust for any GST they previously claimed when they bought it. The adjustment happens annually, usually at the end of June. Since the property was originally bought by the partnership as part of a GST-free deal, the situation remains the same even though the partnership ended.

If you need help, contact Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment on our live calendar.

In: Goods and Services Tax (GST)

GST of purchase an easement

Question: We have a client who got $82,000 (excluding GST) from Origin Energy for the option to buy an easement on their property. The client isn't registered for GST because their income is less than $75,000 per year. But since the payment is over $75,000, do they need to register for GST and tell the tax office about the GST on the option money? The option is a one-time payment, so they don't have to register for GST regularly. Also, how do they deal with tax for the option to buy the easement and when they actually buy it? Are these considered Capital Gains Tax (CGT) events, and what counts as the cost base? For example, are legal fees the only cost for the option? And is a portion of the land's cost base the cost for buying the easement?

In: Goods and Services Tax (GST)

Taxable income, tax payable

Q1: To find Ted Jones's taxable income for 2016/17:

In: Personal Services Income (PSI)

Are prizes in competitions regarded as assessable income?

Question: A client, an architect employed by a company, along with another colleague, participated in a station design competition organized by the government office (OVGA). They made it to the final five and were awarded a prize of $40,000 to develop a plan for the project. They were asked to send an invoice to OVGA for the prize money. The ultimate reward for winning the competition was a contract to design the station. Is the prize considered as taxable income?

In: Personal Services Income (PSI)

PAYG tax offsets

Question: Victoria Jackson is a 55-year-old interior decorator who works for herself and isn't registered for GST. She submitted her income tax return for 2015/16. In 2016/17, her national taxable income was $48,000, which includes a $2,000 donation and a $500 fee to a tax agent. She also paid $1,850 to a private health fund starting from December 1, 2016. Can you figure out her PAYG instalments for 2016/17?

In: Personal Services Income (PSI)

Deductions: Meal expenses

Client: My client travels a lot for work as an executive regional chef. Their employer covers their accommodation costs, but they have to pay for their own meals. Can they claim meal expenses based on the ATO's reasonable meal amounts, even if their payment summary doesn't show any travel allowance?

Deductions for the initial franchise fee

Client: Company A paid $179,000 as an initial franchise fee to start a gym franchise. But they didn't go ahead with the business, not because of any fault of theirs, but because of a legal dispute with the franchisor. They couldn't get a refund of the fee. Here are the questions:

Any GST liability incur when selling farmland?

Client: A private company owned a large piece of rural land. They sold part of it before under a special tax rule for farmland. Now they're planning to subdivide the rest into two parts: one big and one small with an old, unusable house and some farm equipment. The small part has never been used. Here are the questions:

In: Goods and Services Tax (GST)

CGT of two residential properties

Capital Gains Tax Implications for Married Couple's Residential Properties

In: Capital Gains Tax (CGT)

CGT for the sale of shares

Q: A shareholder own shares in a private company. Three-quarters of those shares were issued to the shareholder when the company was formed. The other shares came from the acquisition of the shares of an outgoing shareholder many years later. The shareholder wishes to sell some but not all of their shares. The issue is that disposal of the shares acquired on issue would not have a CGT cost whereas if any part of the disposal was attributed to the later acquired shares, there would be a CGT cost.

In: Capital Gains Tax (CGT)

GST for the boat

Q: One client is looking into purchasing a boat for personal use. Here are the details:

In: Goods and Services Tax (GST)

Blackhole expenditure

Question: A client of ‘A’ company installs underground fiber-optic cables for internet services in new industrial areas. These cables, which are owned by the client, last about 20 years. Previously, the costs for digging and installation were treated as blackhole expenditures, which is typically a last resort category. However, ‘A’ company thinks these costs should be categorized under Division 40, which deals with depreciable assets. Should these costs be treated as blackhole expenditure or fall under Div. 40? Are these costs considered day-to-day expenses (revenue) or long-term investments (capital)?

Answer: These digging and installation costs are not day-to-day expenses because the benefits from the installed cables last many years; therefore, these are long-term investments, or capital costs. The main issue is whether these costs qualify for tax deductions under Division 40 as capital allowances or if they should be considered blackhole expenditures. It seems clear that these costs should qualify under Division 40 as they are necessary for preparing the cables for use, making them part of the second element of cost in this tax division. The second element includes any spending required to get a depreciable asset ready for use, like the installation costs for these cables.

If you need help, contact Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment on our live calendar.

In: Small Business Entity (SBE)

GST of the Company

Question: Mr. A runs a mortgage broking business through a company with his wife. The company hasn't registered for GST because its turnover is below $75,000. Now, Mr. A is also driving for Uber using the company's ABN but owns the car himself. Does the company need to register for GST now that it's earning from Uber? And does it need to charge GST on its mortgage broking services too? How can the company claim car expenses and GST for Uber driving, and can it pay Mr. A back for those expenses?

In: Goods and Services Tax (GST)

GST of the sale of SMSF commerical property

Question: A self-managed superannuation fund (SMSF) wants to sell a commercial property for around $1.1 million. They aren't registered for GST. Do they need to register for GST for the month of the sale since the property sale exceeds $75,000? And will the sale include GST?

In: Goods and Services Tax (GST)

Common questions associated with the JobKeeper Scheme

GST for the sale of farmland

Q: A client bought farmland in October 1997 and has been farming there since. They're now negotiating to sell it. If the buyer plans to use the land for farming, no GST applies due to a farming business exemption.

In: Goods and Services Tax (GST)