Property

07 November 2007

ATO changes its GST approach to development lease arrangements

On 3 October 2007 the Australian Taxation Office (ATO) released Draft Goods and Services Tax (GST) GST Ruling GSTR 2007/D2, which fundamentally alters the ATO’s previous GST approach to development lease arrangements.

Both residential and commercial developments involving development leases from government agencies are affected.

The changed approach applies both before and after 3 October 2007 – but with certain transitional treatments available for arrangements entered into prior to 3 October 2007.

These changes alter the amounts and timing of GST and input tax credits, payable or claimable, by developers. Aside from the tax compliance implications, there will be changed cash flow and possibly increased GST implications for projects.

For commercial premises, the incidence and timing of GST liabilities and input tax credit (ITC) claims by the various parties are affected.

For residential premises, in addition to these incidence and timing affects, the total GST payable may also be increased.

Previously, the ATO approach was that the developer made supplies of the development to the government agency – and the government agency subsequently made a supply of the land (including the developed premises) to the developer, as new residential premises (where residential in nature), who then typically on-sells the premises.

Essentially, the draft Ruling now indicates that the government agency supplies only the land (without the development), so that the developer does not make supplies of the development to the government agency – but rather performs these services on its own account. The later on-sale of the premises then involves sales of new residential premises (where residential in nature) – which will typically involve higher total sale prices being subject to GST.

For further assistance or enquiries please contact:

Mark West on 07 3233 8871
Lyndon Garbutt on 07 3233 8921.