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Whether a sale of property is subject to GST will be dependent on a number of factors. The sale of real property must be made in the course or furtherance of an enterprise before it is brought into the GST system. One way to explain the relevant considerations is through an example: Alan, a sole trader in business as a butcher, and who is registered for GST, decides to sell a block of land he has held for many years for personal purposes. He would not be liable for GST on this transaction as the sale was not made in the course or furtherance of his butcher enterprise. If, however, Alan sold the premise that was used for his butcher business, the disposal is a disposal of a capital asset that is connected to his enterprise. As he is registered for GST and the property is a commercial property, the sale will be subject to GST. It may not be in the ordinary course of Alan’s butchery business to sell the property, but it is still considered to be in the course or furtherance of his enterprise to dispose of a capital asset. An entity’s GST registration status will also determine whether a sale of real property is subject to GST. An entity not registered and not required to be registered for GST will not be required to charge GST on the sale of the property. Note however that a single activity of developing and selling a property could be sufficient for the ATO to require a person to be registered for GST, as they may be considered to be carrying on an enterprise for GST purposes (an adventure in the nature of trade). Mere realisation of assets will not however be considered an enterprise. The ATO will generally take a narrow view of what amounts to a mere realisation and in its guidance has published many examples of what may and may not constitute an enterprise in respect of buying and selling real property. If an entity that owns real property derived rental income from such property but was not required to register for GST as it was under the registration threshold, it is not required to register for GST when it sells the property on the basis that it is a sale of a capital asset (that is, the property was never acquired to re-sell at a profit). Capital assets are excluded from the calculation of projected GST turnover for GST registration purposes.  The sale of a property used for leasing purposes by an entity carrying on a leasing enterprise is excluded from the calculation of its projected GST turnover as the property is a capital asset of the enterprise and not trading stock. In such circumstances, an entity may not be required to be registered for GST at all, and therefore the sale of the property will not be subject to GST because not all the requirements for a taxable supply are met.
The ATO has developed a GST property decision tool (access it here). It says the tool has been designed to assist taxpayers to determine the GST implications for property-related transactions. The tool includes:
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Correcting GST errors and making adjustments on your business activity statements
If you identify a goods and services tax (GST) error for a previous period or on an already lodged business activity statement (BAS), there is always scope to make a correction. The ATO has realised that it is necessary for businesses to be able to make these adjustments, which can easily come about because of a change of circumstances or facts. These can include: · cancellation of a taxable sale or purchase · change in price of either of the above · GST-free export supplies that are not exported within the required time (and therefore become taxable) · bad debts, and · changes in creditable purpose. If you become aware of a GST error or adjustment on an earlier activity statement, you can choose to have us correct that error or adjustment on a later activity statement. However there are certain conditions for adjustments set out by the ATO that can include, for example, a time limit. For an error on which your business overstated its GST liability, the ATO imposes a four year time limit for making an adjustment, which is counted down from when the error was made (specifically, from the due date of the BAS that covers the period when the error occurred). For errors on which not enough GST has been accounted for, there’s an added factor relating to the business’s turnover. For annual turnover of less than $20 million, the adjustment must be made within 18 months. More than that, and it must be made within 12 months. It can generally be easier to correct a GST error on a later activity statement rather than revising the earlier activity statement. But being able to make an adjustment can be important to avoid liability to any penalties or general interest charge. As adjustments relate to changed facts or circumstances, which will have an impact on the subsequent GST outcome of a transaction, the resulting change in need of an adjustment will generally have resulted in a business having either claimed too much GST, or not claimed enough. Claiming too much GST How does a business claim too much GST on a BAS? Whoever provided information in order to complete the BAS could have: · forgotten to include a sales invoice · coded a sale as GST free when in fact it included GST · made an error in coding transactions · included a purchase that is not actually claimable as a GST credit · included 100% of a purchase that wasn't totally for business use. Not claiming enough GST Some situations in which this might be the case include where a business: · found some purchase receipts or invoices from previous periods after a BAS was lodged · made an error in coding the transactions · advice is subsequently received that a purchase is actually claimable as a GST credit but it was not included in a previous BAS · whoever filled out the BAS coded a GST sale as taxable but it was actually GST free. |
AuthorDrew is long-time accountant & Cowboys tragic whose dreams came true in 2015! Archives
March 2020
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