Tax law partnership

Under paragraph 55 of GSTR 2003/D5 “Two or more entities (co-owners) may enter into an agreement with a vendor to purchase, either as joint tenants or tenants in common, a property with the intention of carrying on an activity in relation to that property from which income will be received jointly. In this situation, the association of persons is formed when the co-owners enter into the agreement to purchase the property. As income from the activity will be received jointly, a tax law partnership is formed when the co-owners enter into the agreement.

” Further paragraph 48 of GSTR 2003/D5 also specifies “For GST purposes, a tax law partnership comes into existence when an association of persons carries on an activity from which income is or will be received jointly” The tax law partnership commences to carry on an enterprise from the date of its formation. It may be registered for GST effective from the date of its agreement. Since both the joint tenants are members of an existing GST Group there is no need to register the tax law partnership for GST.

Q2. Input Tax Credit for Initial Development Costs: Under paragraph 30 of GSTR 2005/4 the input tax credits can be claimed on the cost of acquisition which includes the development costs (section 48-45 as read in conjunction with section 48-55 of the GST Act. ) However as per ATO publication ‘Rental Properties 2002’ “Joint tenants must divide the income and expenses for the property in line with their legal interest in the property”.

Hence the joint tenants can claim the input tax credit for the development costs according to their legal interest. Q3. Formation of GST Joint Venture: Under Paragraph 55 of GSTR 2003/D5 Draft Goods and Service Tax Ruling, “Two or more entities (co-owners) may enter into an agreement with a vendor to purchase, either as joint tenants or tenants in common, a property with the intention of carrying on an activity in relation to that property from which income will be received jointly.

In this situation, the association of persons is formed when the co-owners enter into the agreement to purchase the property. As income from the activity will be received jointly, a tax law partnership is formed when the co-owners enter into the agreement. ” Hence it is legally valid to form a joint venture. Q4. GST Liability on Sale of Land to the Government: There will be no GST liability on the sale of land to the Government under section 9-5 of the GST Act, since the land owned is compulsorily acquired by a statutory authority.

Though a transfer of legal interest in the land including the surrender of real property is within the definition of supply within the meaning of section 9-10 of the GST Act, since the relevant authority has not taken any action to cause the legal interest to be transferred to it, but just divested the legal interest from the entity by operation of the statute, upon gazettal notice (it is presumed the land was acquired by the Government by means of a gazettal notice) there is no supply.

The negotiation on the amount of compensation does not alter the position as irrespective of the amount fixed the gazettal notice will vest legal interest of the land in the relevant authority. (Reference: Tax Ruling GSTR 2006/9 (Paragraph 82) Q5. Margin Scheme in Calculating the GST Liability:

In case GST is applicable for the sale to the statutory authority under the margin scheme “For real property acquired on or after 1 July 2000, the margin for the supply is the difference between the consideration for your supply of the real property and the consideration for your acquisition of the real property” (Reference: GSTR 2000/21) Hence in this case the GST is payable at 1/11th of the sale consideration less the value as on 1st July 2000. GST payable is 1/11th of $ 1. 5 Million (consideration for the 25% land acquired by the government) MINUS 25% of$ 2.

5 million (value as on 1st July 2000) = $ 79545. 45 Q6. Input Tax Credits on the development costs of the Units: Under paragraph 30 of GSTR 2005/4 the input tax credits can be claimed on the cost of construction of the premises under section 48-45 as read in conjunction with section 48-55. However it is possible to claim the credits on the basis of the respective rights of the join tenants on the real properties and is not possible to claim equally. “Joint tenants must divide the income and expenses for the property in line with their legal interest in the property” ATO Publication ‘Rental Properties 2002’

Q7. GST Liability on the Sale of Units to Residential Buyers who intend to live in the Units; Under subsection 40-65(1) of the GST Act, a sale of real property is input taxed, but only to the extent that the property is residential premises to be used predominantly for residential accommodation. However, the sale is not input taxed to the extent that the residential premises are new residential premises other than those used for residential accommodation before 2 December 1998 (paragraph 40-65(2)(b) of the GST Act).

Hence GST will be applicable to the sale of all newly constructed residential property from 1 July 2000 whether bought by an owner occupier or as an investment. Q8. Margin Scheme and Calculations: The margin is to be calculated as the difference between the sale price of the Units and the cost of the units sold, as laid down in GSTR 200/21. Q9. Renting residential property: GST is not included in residential rents, as they are an input taxed supply under sub division 40-B. Hence there is no GST liability on the three units rented out.