The Australian Treasury has recently released a draft legislation proposing amendments to the Goods and Services Tax (GST) input tax credits to ensure that the tax law operates as intended. These proposed changes aim to address certain complexities and provide greater clarity for taxpayers. In this blog post, we will delve into the key aspects of the proposed amendments and their implications for businesses.
Q: M company, jointly owned by Australian and UK shareholders, does similar business in both countries under the same brand. M company, based in Australia, hires a digital marketing agency for advertising design. It then passes on some of the design costs to the UK company. Does the UK company need to pay GST for the design services?
Q: Leia Caldwell, a property developer with GST, initially intended to sell 10 townhouses as new residential premises, making each sale taxable for GST. She claimed $300,000 in input tax credits for construction materials. Later, she decided to lease three townhouses instead of selling them. Since she's now renting them out as residential properties, they're considered input taxed supplies, meaning she can't claim input tax credits for them.
Question: Tim West and Associates, a partnership of solicitors registered for GST, are moving to new rented office space. They negotiated with the landlord to receive $30,000 as an inducement fee to enter the new lease. What are the GST implications for both parties?
Answer: When they enter the lease, it's considered a service provided by the landlord to the solicitors' partnership. Since it's a commercial lease, not a residential one, it's not exempt from GST. Both the landlord and the solicitors' partnership are likely registered for GST.
According to GST laws, the partnership (the tenant) made a supply by agreeing to the lease, and the $30,000 they received is the consideration for this.
Following GST rules, the partnership needs to remit GST to the ATO, which is $30,000 divided by 11, equaling $2,727.27.
Also, if a lessee pays a premium to secure a lease, the lessor needs to account for GST on that premium.
Note: If either the lessor or lessee pays to end a lease, GST responsibilities depend on who makes the payment. If it's the lessor, the lessee needs to account for GST, and if it's the lessee, the lessor must account for GST.
Got questions? Reach out to Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment on our live calendar.
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.
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.
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?
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:
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?
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