THE long-demanded revamp of the Real Estate Institute of WA’s sale contract seems to be going ahead.
THE long-demanded revamp of the Real Estate Institute of WA’s sale contract seems to be going ahead.
Accountants have been calling for the inclusion of more GST-specific information for months because many commercial property purchasers are being hurt by unexpected GST consequences.
Jackson McDonald tax consultant Graham Harrison said he knew of one recent case where a property was bought for $3 million. The buyer thought he could claim $300,000 in input tax credits but found this was not the case because the vendor had opted to sell under the margin scheme.
The existing REIWA sales contract makes mention of GST but does not go into detail about things such as the margin scheme.
Mr Harrison said property buyers were also getting caught out at auctions, because in some cases they were unaware whether the property was being sold under the margin scheme or not.
“The auctioneer should make it clear whether the sale will be GST inclusive or under the margin scheme,” he said.
PKF tax consulting partner Mark Pollock said his firm had approached the REIWA and was helping it redraft its sales contract form.
He said GST issues relating to commercial property transactions were becoming particularly widespread. Auctions were also a concern.
“When you’re bidding at an auction you need to know if the vendor is using the margin scheme. Sometimes it is not that clear,” Mr Pollock said.
REIWA public affairs director Lino Iachomella confirmed the margin scheme and GST treatments on the form were being examined.
“Now that we’ve had a couple of years’ experience with the GST we’ve realised circum-stances arise where the GST needs to be explained on the contract in greater detail,” he said.
Mr Iachomella said part of the hold-up in revamping the contract had been caused by the Australian Tax Office’s tardiness in explaining how it would treat commercial property transactions.
“After the GST’s introduction, the GST treatment of commercial property transactions was the biggest area of uncertainty,” he said.
“This uncertainty was caused because the rules weren’t clear. It took the ATO 18 months to clarify how it would treat the sale of a going concern.
“The rules are now becoming more familiar with buyers, sellers, agents and advisers.”
One of the concerns for many tax experts is that real estate agents are being forced to give advice on GST matters, some-thing Mr Iachomella admitted was also a REIWA concern.
“We’re concerned about the low level of GST understanding amongst property sellers. As a result a number of commercial property sellers are requiring advice prior to entering into a sale,” he said.
“We recommend the owner should obtain GST advice from a suitably qualified person. That advice should be relayed to the agent so he or she can accurately record that advice on the sales contract.
“At an auction the GST implications should be explained before bidding starts.”
Under the margin scheme the GST is levied only on the margin between what the vendor paid for the property and what he or she sold it for, unless the vendor bought the property before July 1 2000. In that case the margin is between the property’s value at June 30 2000 and the sale price.
The vendor decides whether the property is sold under the margin scheme. However, once a vendor decides to sell a commercial property under normal GST rules, the margin scheme can no longer be applied by future sellers.
Accountants have been calling for the inclusion of more GST-specific information for months because many commercial property purchasers are being hurt by unexpected GST consequences.
Jackson McDonald tax consultant Graham Harrison said he knew of one recent case where a property was bought for $3 million. The buyer thought he could claim $300,000 in input tax credits but found this was not the case because the vendor had opted to sell under the margin scheme.
The existing REIWA sales contract makes mention of GST but does not go into detail about things such as the margin scheme.
Mr Harrison said property buyers were also getting caught out at auctions, because in some cases they were unaware whether the property was being sold under the margin scheme or not.
“The auctioneer should make it clear whether the sale will be GST inclusive or under the margin scheme,” he said.
PKF tax consulting partner Mark Pollock said his firm had approached the REIWA and was helping it redraft its sales contract form.
He said GST issues relating to commercial property transactions were becoming particularly widespread. Auctions were also a concern.
“When you’re bidding at an auction you need to know if the vendor is using the margin scheme. Sometimes it is not that clear,” Mr Pollock said.
REIWA public affairs director Lino Iachomella confirmed the margin scheme and GST treatments on the form were being examined.
“Now that we’ve had a couple of years’ experience with the GST we’ve realised circum-stances arise where the GST needs to be explained on the contract in greater detail,” he said.
Mr Iachomella said part of the hold-up in revamping the contract had been caused by the Australian Tax Office’s tardiness in explaining how it would treat commercial property transactions.
“After the GST’s introduction, the GST treatment of commercial property transactions was the biggest area of uncertainty,” he said.
“This uncertainty was caused because the rules weren’t clear. It took the ATO 18 months to clarify how it would treat the sale of a going concern.
“The rules are now becoming more familiar with buyers, sellers, agents and advisers.”
One of the concerns for many tax experts is that real estate agents are being forced to give advice on GST matters, some-thing Mr Iachomella admitted was also a REIWA concern.
“We’re concerned about the low level of GST understanding amongst property sellers. As a result a number of commercial property sellers are requiring advice prior to entering into a sale,” he said.
“We recommend the owner should obtain GST advice from a suitably qualified person. That advice should be relayed to the agent so he or she can accurately record that advice on the sales contract.
“At an auction the GST implications should be explained before bidding starts.”
Under the margin scheme the GST is levied only on the margin between what the vendor paid for the property and what he or she sold it for, unless the vendor bought the property before July 1 2000. In that case the margin is between the property’s value at June 30 2000 and the sale price.
The vendor decides whether the property is sold under the margin scheme. However, once a vendor decides to sell a commercial property under normal GST rules, the margin scheme can no longer be applied by future sellers.
