The case law continues to mount in relation to GST issues and disputes. Many of these involve the sale or acquisition of business assets and real estate.
The most recent example involved a property developer, purchasing a suburban “commercial office” which the developer wanted to demolish, redeveloping the land for a residential unit development.
The sale/purchase proceeded as a taxable supply with the vendors refusing to consider the use of the margin scheme.
The developer purchaser accordingly paid the GST but was subsequently unable to recover the input tax credit. The ATO rejected the developer’s application on the basis that the sale was the supply of “residential premises” other than “new residential premises” and therefore input taxed. The ATO ruled that the “commercial office” the subject of the sale began its life as a house and was initially used as a residence. Regardless of its most recent commercial use the ATO insisted that its initial residential use and the fact that there were no restrictions upon it, once again, being used for residential purposes, meant that the intermediate commercial use was irrelevant.
Unfortunately in Australia, at least, the GST treatment of such transactions can be complex and confusing. The current ATO draft ruling (GSTR2012/D1), whilst providing many examples to work through, is still not final and still not clear cut. It began its life as GSTR2000/20, was reviewed in GSTR2011/D2 and still seems to be causing (potentially expensive) problems for accountants, lawyers and their clients. In all such transactions, beware!
Please contact a member of our commercial team if you would like more information.