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Property developers could end up selling themselves short if they fail to heed a recent federal court decision, tax specialist TurksLegal has warned.
The recent Federal Court decision of Cyonara Snowfox Pty Limited v Commissioner of Taxation has denied various attempts to avoid paying GST during sale transactions.
According to taxation Special Counsel at law firm TurksLegal, Paul Anderson, the Federal Court ruling could have GST liability implications for real estate transactions both past and present.
“Those developers who have claimed to be GST exempt but have not kept sufficient records may have left themselves vulnerable to being pursued by the ATO for outstanding GST payments down the track,” Mr Anderson said.
This case demonstrates the importance for both vendors and purchasers to take into account how the going concern rules apply to the sale of real estate to avoid GST implications down the line, according to TurkLegal.
The decision also concluded that the choice to use the margin scheme must be made before the supply is made, namely by settlement of the sale, and not at the sellers’ discretion.
The Federal Court ruling clarified the following parts of the GST Act:
• The timing of when the Margin Scheme could be applied when calculating GST.
• The onus of proof was with the seller not the ATO to adequately demonstrate that a supply was a going concern and hence GST exempt.
• In the circumstances, the Tax Commissioner was able to recover GST after the limitation four year period had elapsed.