Goods & Service Tax (GST) Essay

Are they correctly registered for GST?

Anthony Eromo and Stephen Neci are not correctly registered in the Goods and Services Tax. This is because they both do not claim their involvement in a joint venture. They are registered in both of their professions but instead of claiming the participation of Stephen Neci in the business, he is registered as a chiropractor, a different profession than that of a member of a joint venture. Specifically, an entity satisfies the participation requirements for a GST joint venture, or a proposed GST joint venture, if the entity is registered. Sec 51-1 of GST Act 1999 stipulates the approval of GST joint ventures requiring the approval of two or more entities as participants[1] and each of the entities “satisfies the participation requirements for the GST joint venture[2].

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Have input tax credits on the initial development costs been correctly claimed by Mr. Eromo and Dr.Neci?

Mr. Eromo and Dr. Neci have claimed the correct amount of input tax credits on the initial development costs of the venture. Even if Dr. Neci does not acknowledges himself in the GST as a member of a joint venture, Mr. Eromo’s input tax credits at the start of the business is enough for the correct claim of taxes. After all, the operator of a joint venture, which is presumed to be Mr. Eromo, can solely pay for the input tax credits at the beginning of a business[3]. Also, a participant or the other member of the joint venture may or may not give input tax credit.

Can they form a GST Joint Venture?

The initial status of Mr. Eromo and Dr. Neci since it is a joint venture, as by definition, “a joint venture that is so approved is a GST joint venture[4].” They can however go through the process of registration. Take note that Dr. Neci has only an interest in the parcel land they purchased for development and not on the business of Mr. Eromo per se.  Thus, their project is more of a joint venture and can be registered as such.

Do they have a GST liability on the sale of the land to the government?

Both entities do not have a liability under the GST Act of 1999 but they are not covered by the exemption since the property value at the time of sale was above the $100,000.00 and hence they are liable to pay capital gains tax[5]. Take note that Mr. Eromo and Dr. Neci did made a profit from the sale. Take note that they bought the land for $1.1 million and sold 25% of the property for $1.5 million, thus earning $400,000.00 and that was only 25% of the property.

If there is a GST liability, can they apply the margin scheme in calculating the GST liability & how is it calculated?

There is no GST liability. As what was stated, sales tax on land is not covered under the GST Act.

Have input tax credits on the development costs of the units been correctly claimed by Mr. Eromo & Dr. Neci?

After the construction of the units, the input tax credits have also been correctly claimed by Mr. Eromo and Dr. Neci because Dr. Neci has registered himself in the business of property development. Thus, both Mr. Eromo and Dr. Neci are now giving equal amounts for the development of their properties. The input tax credit on the GST, in any case, can be adjusted when there is a presence of another entity and also, a participant of a venture can also give a share on the input tax credits[6].

Do they have a GST liability on the sale of the units to residential buyers, who intend to live in the units?

There is no GST liability on the sale of the units to residential buyers as the units qualified as new residential premises[7] (have not previously been sold as residential premises) and excepted from tax[8].

If they do have a GST liability, can they apply for the margin scheme in calculating the GST liability & how is it calculated?

If they do have a GST liability, the taxable supply of real property under the margin scheme, the amount of taxation is 1/11 of the margin for the supply[9].

What happens about the 3 units that are rented out?

The 3 units are subject to valuation as since it was constructed after July 1, 2000[10] but would remain tax free for period of five years since it could be considered as new residential premises and not an improvement of old building or renovations[11].

[1] Section 51-5 (1) Approval of GST Joint Ventures, GST Act 1999
[2] Section 51-5 (d) Approval of GST Joint Ventures, GST Act 1999
[3] 51-35 Who is entitled to input tax credits, GST Act 1999
[4] Section 51-5 (1) Approval of GST Joint Ventures, GST Act 1999
[5] Accessed at http://www.abelrealty.com.au/news/LandTax180205.htm
[6] Section 51-35 Who is entitled to input tax credits, GST Act 1999
[7] Section 40-75 (2) Meaning of new residential premises, GST Act 1999
[8] Section 40-70 (1) (A) Supplies of residential premises by way of long-term lease, GST Act 1999
[9] Section 75-10 The amount of GST on taxable supplies, GST Act 1999
[10] Section 75-11 (3) Use of valuation to work out margins, GST Act 1999
[11] Section 40-75 (2) Meaning of new residential premises, GST Act 1999