How To Get A Gta Claim In Australia

Transcription

1 GST Issues for Lawyers Presented by nsatax Limited Disclaimer This webinar is of a general nature only. Please obtain specific advice on client situations as minor changes in facts may result in significantly different outcomes. This webinar does not purport to cover all aspects of tax law relevant to the topics covered. Property Sales The main problematic areas we are seeing stem from property sales Either the sale and purchase agreement is completed incorrectly Or the GST Act does not deal with certain events Leaves the door open for one party to seek a windfall gain at the expense of another 1

2 Property Sales We have had a number of cases where the vendor or the purchaser is saying: Tell me who I can sue to recover my loss GST Basics When can a GST registered vendor charge the purchaser GST over and above the stated price? GST Act generally doesn t cover Therefore normally determined by contract: plus GST (if any) Yes inclusive of GST (if any) No price silent No exclusive of GST Unclear Example Property developer Client put in an offer via a tender to purchase a property for $1,000,000 plus GST The vendor sought an amendment to the offer recording the purchase price as $1,150,000 incl GST Lawyer confirmed ok to amend as would get a GST claim of $150,000 so net cost would be $1,000,000 2

3 GST Basics It makes no difference whether the contract is plus GST if any or inclusive of GST if the sale is zero rated The price is the price! GST is still payable or claimable BUT at 0% No longer an ability to claim an upfront GST on the purchase of land unless the vendor is not GST registered or if registered did not use the land in a taxable activity A claim can then be made under the secondhand goods provisions Supplies of Land Between GST Registered Persons Pre-1 April 2011 Could be zero-rated if a going concern and parties agree in writing (e.g. supply of tenanted commercial building or farm with stock) Otherwise 15% GST applies Supplies of Land Between GST Registered Persons From 1 April 2011 CZR rules Compulsory zero-rating if: Taxable supply wholly or partly of land between GST registered persons and Recipient of the supply intends to use for making taxable supplies and Recipient NOT intending to use property as principal place of residence for themselves or a relative (to 2 nd degree) 3

4 GST Basics There is no choice! That s why the law is referred to as CZR CZR = compulsory zero rating GST Basics A secondhand goods input tax credit can arise when a purchaser purchases land or other secondhand goods from an unregistered person Case study: property developer can claim a secondhand goods input tax credit on $3.45m purchase from GST unregistered vendor of $450k (assuming not associated persons ) Special rules apply e.g. to associated person purchases and regarding timing of claiming the credit Land For the zero-rating of land rules a supply that is an assignment or surrender of an interest in land is chargeable with tax at 0% 4

5 Example So in our example The Client has to pay $1,150,000 Does not get a GST claim as the sale must be zero rated Net cost = $1,150,000 Luckily the vendor did not intend to seek a windfall gain and agreed to vary the contract to $1,000,000 plus GST Otherwise the purchaser out of pocket to the tune of $150,000 which could be their profit margin Sale & Purchase Agreement What Does This Mean? If No the vendor is not GST registered Signal to the purchaser that they can make a second hand goods claim if using the property in a taxable activity If yes the vendor is GST registered and used the property in a taxable activity Signal to the purchaser that if not registered and plus GST contract that they will have to pay more 5

6 Clause The vendor warrants that the statement on the front page regarding the vendor s GST registration status in respect of the supply under this agreement is correct at the date of this agreement What Does This Mean? If circle Yes in error No issue for the vendor No issue for GST non registered purchaser A GST registered purchaser may not be aware they can make a secondhand goods claim Can make a claim later but if IRD doesn t allow then could be an issue under the warranty for the lost GST What Does This Mean? If circle No in error Vendor still has a GST liability If the purchaser is not GST registered and the contract is plus GST then the purchaser will suffer an increase in price so the vendor will have an issuer under clause 14.1 If the purchaser is GST registered then the sale will be zero rated and the purchaser will not be able to claim GST they may have expected to get so an issuer for the vendor under clause

7 What Does This Mean? Any GST liability is determined by the vendors GST registration status and whether the property was used in a taxable activity The sale & purchase agreement itself does not determine the GST liability The IRD is not concerned if there is a dispute between the parties or an error in the agreement If the sale is zero rated under the GST Act then it is zero rated It is up to the parties to resolve any dispute and seek any compensation for loss Example Contract price $800,000 plus GST Vendor circled NO on the front page The purchaser acquired the property for use in a taxable activity and was GST registered The purchaser intended making a GST second hands good claim of $104,347 Vendor later said they were GST registered The sale is zero rated regardless of the fact that the vendor circled No Purchaser to make claim under clause 14.1 for damages which = lost GST Example Contract price $900,000 plus GST Vendor circled NO on the front page The purchaser made a GST second hands good claim of $117,391 The IRD disallowed the claim as they said the vendor was GST registered Client said who do I recover the lost GST from Need to use warranty clause

8 Zero Rating Land Sales Disclosure Requirements At or before settlement purchaser must provide a written statement to the supplier as to whether at settlement They are or expect to be GST registered They are acquiring the goods with the intention of using them to make taxable supplies They do not intend to use the land as a principal place of residence for them or a relative Zero Rating Land Sales If statement provided, supplier may rely on the information provided even if information later proves to be incorrect If supply incorrectly zero rated, purchaser can be liable to account to IRD for the GST If no statement provided or supplier does not have sufficient information then should charge 15% Zero Rating Land Sales Purchaser cannot avoid zero rating by not providing statement as to their intention Statement not required for new zero rating land sales to apply If purchaser GST registered & acquiring land to make taxable supplies, sale is zero rated 8

9 Zero Rating Land Sales If supplier charges GST at 15% and purchaser tries to make input tax claim, IRD will not allow the refund & the supplier can reverse output tax under section 25 No longer upfront GST claims for land purchases Question Client entered into an agreement to sell land on GST inc basis. Purchaser circled they are registered for GST. Before settlement the purchaser s solicitor advised sch 2 was completed in error and purchaser is not registered for GST and not using the property for GST taxable activity. What do we do? Zero Rating Land Sales The legislation does not deal with this situation The reverse charge provision does not apply as notification of the charge in registration status of the purchaser occurred before settlement On the face of it can t zero rate and the vendor has a GST liability as GST inc purchase price 9

10 Zero Rating Land Sales Our view is that the vendor should still zero rate IRD TIB states that where original treatment (ie zero rating) changes before settlement the parties can agree to alter that treatment However if parties don t agree then original treatment stands What do we do then? Zero Rating Land Sales Write to solicitor and advise that sale will be zero rating in accordance with IRD policy Also refer to warranty provisions in the agreement The problem is the contract is GST incl GST Question Client is purchasing land that has an apartment on top and commercial on the bottom floor Vendor claimed GST on apartment previously What is the GST position for purchasing client as the contract is plus GST 10

11 Answer Question Confusing! Not 2 supplies as the vendor has claimed GST on the apartment So the entire property is in the GST net The answer depends on what entity acquires the property The third requirement Recipient NOT intending to use property as principal place of residence for themselves or a relative (to 2 nd degree) Answer Question If a company or trust is acquiring the property then the entire sale can be zero rated as the recipient can not reside on the land If an individual is acquiring the property then the sale can not be zero rated as part of the property is to be used as a residence How is the apartment dealt with? GST Answer Company / Trust Ownership Zero rate entire sale Adjustment then made and GST paid on the value of the apartment Individual Ownership Cant zero rate sale Individual claims GST on commercial portion 11

12 Mortgagee Sales Mortgagee deemed to be making a taxable supply where property is sold pursuant to a power of sale unless The mortgagor furnishes to the mortgagee a written statement that the supply of the property would not be a taxable supply; or Mortgagee Sales Where the mortgagee has been unable to obtain a written statement from the mortgagor, the mortgagee can determine, based on any reasonable information held, that the supply of the property would not be a taxable supply if the property was sold by the mortgagor Mortgagee Sales CZR rules apply Contract will likely be plus GST So if any doubt the mortgagee will zero rate or if purchaser not GST registered will charge GST 12

13 Sale & Purchase Agreement Walker & Co Solicitors Nominee Co Ltd Peter Smith / Mortgagee Sale Example Client was acquiring property from Mortgagee Contract was plus GST Mortgagee now saying the vendor is GST registered Sale zero rated if vendor GST registered Lost GST claim! Mortgagee Sale Example Mortgagee sale Residential property Contract was plus GST Client knew the vendor was a developer but had used the property for the last 3 years as fully residential 13

14 Mortgagee Sale Example Mortgagee said was going to charge GST unless zero rated Client contented that the vendor should have made change of use adjustment 3 years ago Mortgagee did not accept GST & Dwellings Where a supply of real estate includes the supply of a principal place of residence, there are deemed to be 2 supplies Supply of the principal place of residence Supply of other real property GST & Dwellings There are two sales from a GST perspective Farm sold with a dwelling which is used as a principal place of residence Farm land is zero rated Dwelling is exempt If purchaser is going to use the dwelling for a commercial purpose then they may look to claim a second hand goods input tax credit on the value of the dwelling 14

15 Insurance Payouts Insurance proceeds are subject to GST where recipient GST registered and the payment relates to a loss incurred in carrying on a taxable activity Maybe damages but still subject to GST If paid to a person not party to the contract of insurance, GST liability arises if loss incurred in course of taxable activity Insurance Example A causes damage to B s commercial building and agreement is reached in regards compensation A s insurance company pays B B must account for GST on the insurance proceeds Perhaps the insurance company pays A who then pays damages to B Then not subject to GST Forfeited Deposits Contract may provide for a non refundable deposit What happens if contract cancelled Deposit retained There is no supply and the deposit changes in nature to damages Damages not subject to GST 15

16 GST GST taxable events Trust distributions Trust resettlements Relationship Property Settlements Distributions on death GST No specific GST legislation GST payable on consideration However supplies between associated persons take place at market value Unless recipient is GST registered & using asset in taxable activity in which case actual consideration = 0 GST If a GSTable asset there will be a deemed disposal at market value Need to look at the registration status of the recipient If recipient is GST registered and using asset in taxable activity no consideration so no GST issue otherwise GST payable by transferor at market value 16

17 The Basics GST Do s and Don'ts Guide The Do s Always assume there is a GST implication until determined otherwise Obtain all background information Identify the correct GST implications Review contract Zero rating clauses Pricing and recovery (usually plus GST (if any) or GST inclusive (if any) ) Clause relating to dwellings The Don'ts Assume the clients version of the transaction matches the evidence Assume that other people will address all relevant GST issues Assume the other party is not looking for a windfall gain Assume personal liability 17

18 Examples of Personal Liability Don t act as trustee (unless unavoidable) Trustee is liable for GST of trust Section 57 C of IR v Newmarket Trustees If resigning as trustee make sure give IRD notice Liability applies up until the time IRD receives written notice of resignation Section 57 (3B) C of IR v Chester Trustee Services Ltd Examples of Personal Liability Don t act as company Director (unless unavoidable) Directors of a company which has defaulted on GST payments can be pursued on occasions by liquidators if in breach of duties Section 61 adopts section HD 15 of the Income Tax Act If a Director don t personally guarantee the company s GST debt Examples of Personal Liability Don t undertake to IRD that client will pay GST to the IRD If client defaults IRD will seek to enforce undertaking Bhanabhai v C of IR Solicitor undertook to pay GST to IRD upon the pending sale of a property 18

19 Examples of Personal Liability Don t undertake to client to meet GST liability Woollams v Zurich Apartments Company enforced guarantee an accountant provided Don t give a professional or personal undertaking that GST due under a purchase contract will be paid Questions 19