Please create a discussion on Australian GST TAx and explain………………..

TABLE OF CONTENTS

1. INTRODUCTION……………………………………………………………………3
2. ISSUES………………………………………………………………………………4

2.1. GST ON RELOCATION OF AN EXISTING HOUSE…………………4

2.2. GST ON PERCHSED SECOND HAND HOUSE………………………4

2.3. GST PAYMENTS FOR RENOVATION………………………………..5

2.4. GST PAID ON SELLING A HOUSE…………………………………….5

2.5. MULTIPLE PAYMENTS OF GST BY DEVELOPERS…………………6

3. ARGUMENTS………………………………………………………………………….6

3.1. GST ON RELOCATION OF AN EXISTING HOUSE……………………6

3.2. GST ON SECOND HAND HOUSE………………………………………..7

3.3. GST ON PAYMENT FOR RENOVATION………………………………..8

3.4 GST PAID ON SELLING A HOUSE………………………………………..9

4. CONCLUSIONS………………………………………………………………………10
5. REFERENCES…………………………………………………………………………11

INTRODUCTION

Goods and Services Tax (GST) is a value added tax on the supply of goods and services in Australia (Benjamin, Allen, 2010). The tax requires each business to pay GST on the value it adds to a particular product. The end cost of GST is passed to the consumer. It was introduced in by the federal Government in the year 1999. Prior to the Goods and Services Tax system Australia used to operate a Whole Sales Tax system. GST tax system is applied equally to all businesses within the Australia (Julyan, 2004).

In real estate sector, GST in its application has some shortcomings to businesses and individuals who are engaged in real estate developments. In real estate development, an entrepreneur may have to undergo multiple stages in the process of developing a given project. The stages which are involved here themselves are treated as different investments under GST system, hence they are taxed separately. For example when a property developer who is registered for GST wants to develop an existing property which might be in use, he or she might decide to purchase a temporary property for use during the time of development. By doing this, he or she will be charged GST tax. A gain the same developer will be charged a GST tax for the new developments which he or she will be doing. If the same developer eventually decides to sell the property, a GST tax will be levied to the developer for selling the property again. This shows that the developer will incur multiple GST tax on the same development project.

The above illustration leads us to the key question of GST law that this paper will try to address; is it correct for any property developer who is registered for GST to pay multiple of GST tax on the same project? To address the question there must be a request for a private binding ruling. A private binding ruling can be defined as a ruling given to an individual taxpayer about their own tax affairs (Australian Government. 2012).

Issue of double payments of GST Tax on relocation of an existing house

Goods and Services tax system requires that a tax be paid on a particular service or product when a value is added. In the relocation of an existing house the Australian Government will levy tax to the property developer who is carrying out the work (Krever, 2000). The tax levied by the Australian Government for the relocation of the existing house will not consider the previous GST which the same developer was charged when he or she was constructing the initial house. This will imply that the same developer will pay GSM tax twice on the same project. For example, since the developer is registered for a GST tax he or she must have paid the GST tax when the development was initially being done and again when doing the renovation the developer will again pay for GST tax. Hence the issue of double payment of a GST tax needs to be addressed by the private binding ruling.

Issue of GST tax on purchased second hand houses.

When a developer wants to relocate an existing house which is already occupied, he or she may opt to purchase a temporary second hand house for the occupants of the house to be relocated. The main aim of the second hand house will be to accommodate the existing occupants during the relocation process. In this case the developer will pay for the GST tax of the secondhand house which in real sense he or she did not develop. This will imply that the Australian government will receive double payments of GST tax for the same product from two different individuals. The private binding ruling should therefore address the issue where Australian authorities receive to payments from two different individuals or businesses on the same product.

That is to say the Australian governments receive double payments of GST tax from the same product.

GST tax on payment for renovation

Renovation simply involves improvements of some given specification to an existing entity. Payment of GSM tax on renovation of houses could be seen as additional payments of GST tax. This is because the developer will pay paid for GST when he was developing the initial house and therefore when the Australian authorities once again charged for renovation work, he or she will have paid additional GST tax to the Australian authorities.

The renovation work does not involve any additional features or projects; it is simply improving the already existing projects which might be in bad state. In renovation of a house, the only effect will be improvement of the condition of the house. The Goods and Service Tax payment for the renovation work is therefore not justifiable to the developer. Hence the private binding ruling should address the issue of additional payments of GST tax to the same product.

GST tax paid when a developer sells a house.

A developer who is registered for Goods and Services Tax will pay GST tax at the time he or she will be doing the construction work. Upon completion of the construction work the developer might want to sell the product. According to the GST tax law the developer will be expected to pay for the GST tax on profit realized. Since the same developer was imposed to the GST tax during the development of the project, it will be unjustifiable for the Australian authority to once again impose the same GST tax to the same developer. This will be regarded as excess payments of Goods and Services tax by the developer. The Australian government will have received two consecutive payments in form of GST tax from the same investment. This again will call for private binding ruling by the developer of such type of investments.

Issue of multiple payments of GST tax by property developers

Development of properties such as constructions of buildings involves a number of process and stages. The stages involves all realty to one another, that is to say they are of the same investment activity. Any investment activity should be regarded as a single businesses unit hence the GST tax should be charged on each of its products once (Trans-Nam, 200). The GST tax should not be charged as per the stage or process of the development as in the above illustrated cases. The Australian authorities should therefore enforce the GST tax on a whole set of a real estate development but not on the different stages involved. The private public binding hence should address the issue of multiple payments of GST tax by a real estate investment company.

Argument regarding the issue to be addressed by PBR

Double payments of GST Tax on relocation of an existing house

Relocation of an existing house involves changing the geographical location of a house. Any individual or business should have the exclusive right to relocate any of his her property at will, provided that the relocation is carried out on the same piece of land that belongs to the given individual or business entity. Relocation of a house does not involve any new developments; hence it should be regarded as the same development. When GST tax is levied to individuals or business entity that is carrying out the relocation exercise, the GST tax should be regarded as double paid. This is because when the initial house or development was being constructed, the developer was imposed to GST tax. Again when he or she is relocating the house, the Australian government will once again charge him or her GST tax for the relocation of the house. They Australian authority will consider the relocation as a new business venture contrary to the developer who will view this as just changing the geographical location of the same development.

The private binding ruling will therefore be appropriate in this case due to the following; the developer will have overpaid the Australian authority through double payments. The payment should be regarded as double payment since it involves payment of the Goods and Service tax twice on the same product, in this case a house. This is because the house doses not change its form; hence no value has been added to the house which will make it qualify for the Goods and Service Tax.

Arguments regarding the issue of GST tax on purchased second hand houses.

Any property developer has the freedom to purchase second hand house and place in its property. The purchased second house could be of varying use by the developer such as using it as a temporary shelter when doing renovation, construction or relocation. Australian authority, under Goods and Service tax will consider this as a new development and levy the GST tax the property developer in this case the buyer of the second hand house. The same authority will have also charged the seller of the second house the same Goods and Services tax. This will imply that the Australian authority will have had collected GST tax of the same product twice. This will not be a appropriate for the developer who purchased the house or property since he or she was not involved in the construction of the house.

By purchasing the property from a different source, the developer will have not added any value to the property hence has no obligation to pay the tax associated with the value addition. Hence the Australian authority should charge the Goods and Service tax to the seller of the house but not the buyer of the property. The issue of receiving double payment by the Australian government from the same product also request for private binding ruling.

Arguments regarding GST tax payment for renovation

Renovation involves improving the condition of a product or any development, it is aimed at making the products or developments appear better. Renovations are only carried out on an existing development. It may involve paintings or repairs to all or identified areas of a development. It is the duty of the property owner or developer to carry out the renovation work whenever he finds that his or her property requires renovation. When Australian government levies tax to an individual or business entity that is carrying out a renovation exercise on his or her development, the developer will have paid extra Goods and Services tax since the same developer paid for a similar tax during the construction of the house. When renovating the house the Australian authority should not charge individuals GST tax as they have already the same tax from the same developer or individual during the construction of the house.

Doing renovation does not involve adding any value to the products (Nutman, Klasic, 2001). The main aim of renovation is to make improvements to a particular development and make it look better than its previous condition. Hence renovations work can not be attributed to value addition since there is no extra facility or structure added, but only the existing facilities are improved. It will therefore be an ethical for the Australian Authority to charge GST tax on renovation works. This will be extra payments to the developer since the same house was imposed to GST tax when the initial construction wastaking place hence he should be refunded. Because of this extra payment that the developer has to pay as a result of being charged Goods and Service tax for renovation works on the same property which was imposed to the same tax before, there is therefore a need for private binding ruling regarding the issue.

Argument regarding GST tax paid when a developer sells a house.

Most of developers are involve in the business developing and selling the developed projects. They are largely involved in the constructions of houses or buildings and later disposing them. During the constructions of a house or any development, the developer is required to pay the Goods and Services tax by the Australian authority. The GST tax is paid for each development which an individual develops. This implies that a property developer who is registered for GST tax is required to pay the GST tax to the government of Australia when constructing a house. This is because construction of a house will add value to the house. Since real estate involve the construction and selling of houses the developer will eventually sell the house once the construction is complete. During the sale of the house the developer will be required to pay the GST tax again since it involves the sale of a product and warrants payment of GST tax under the Australian law. In this case the same developer will pay Goods and Service Tax for the same product (house) twice. This should be regarded as double payment of the GST tax by the property developer. The GST tax should be designed in such away that an individual only pays for it once for a given product or investments. Double payment of this tax will be burden to the business society in Australia.  Hence the GST tax paid when a property developer sells house calls for private binding ruling.

Conclusions

Property developers do incur multiple of Goods and Services Tax in the process of doing their businesses. The design of the GST tax system in its current form does not work in favor of property developer. The payment of multiple GST tax by the property developer for the same development is not justifiable. Hence it is not appropriate for the property developer to pay these multiple GST tax to the Australian authorities. This issue therefore calls fall a private binding ruling. The GST should be designed in such away that it is paid only at one stage of any development by the property developer.

References

Ambrose, B. Sanders, B(2004). The effect of conforming loan status on mortgage yield spreads. A loan level analysis. Real estate economic 32,541-569.

Australian Government. Australian taxation office. 2012. Available from

http://www.ato.gov.au/  [Accessed on 26^th April 2012)

Benjamin, L. Allen, H. (2011). Journal of Modern accounting and Auditing. 7 (9), 986-983

Benjamin, L. Allen, H. (2010). European Journal of Economics Finance and Administrative sciences. 25(1), 109-117.

Julyan, L. (2004). “Value-added tax on new residential properties: A comparative study regarding developers registered for VAT purposes”. Meditari accountancy Research.12(1),119-136.

Krever,R (2000). GST legislation PLUS. Australian Tax. Practice. Sydney.

Nutman,A. Klassic, F. (2001). International tax  review. Supplementary E-commerce 4, 107-103.

PWC.(2010). Changes to the GST financial supply provision.

Tras-Nam, B (2000). The implementation cost of the GST in Australia.Concepts, preliminary estimates and implications. Journal of Australian taxation 3,31-43.

Wilson, N. (2007). GST treatment of certain land supplies which are part of development projects may be changing. International tax review 18(6).

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