In brief, a taxable supply will have occurred where the supplier is registered (or required to be registered) for GST and a good or service is supplied in the course of an enterprise. The supplier (the vendor) must remit one eleventh of the price to the Tax Office as GST.
Usually the recipient (purchaser) will pay that GST amount to the vendor or, and, when the purchaser lodges their next BAS return following settlement, they will receive an input tax credit for the GST paid. As with stamp duty, things become particularly interesting when the need to consider an exemption or qualification arises.
- sales of commercial property. These will often amount to a taxable supply, with an additional 10% as GST payable by the purchaser at settlement. Often the going concern exemption (see below) applies;
- purchases of commercial property. Where they constitute a taxable supply, a purchaser has three significant disadvantages. First, there is the loss of cashflow while they wait to receive their input tax credit. Second, stamp duty is payable on the additional amount of GST paid (yes – a tax on a tax). Third, the purchaser, when they ultimately sell the property, cannot obtain the benefit of the margin scheme (see below).
- the margin scheme. This is a concession which a vendor may use, by recording that fact in the contract. Where this is used, GST is not one eleventh of the price; it is one eleventh of the difference between the vendor’s original purchase price and the selling price. It is obviously considerably less than normal GST. The set-off is that the purchaser obtains no input tax credit. This scheme is usually used where a purchaser is not registered for GST and is therefore not able to obtain any input tax credit. A typical example is the sale of a residential block of land from a developer to a person who proposes to build on it.;
- the going concern exemption. This is intended to apply on the sale of businesses. It applies where, amongst other things, the vendor is supplying everything necessary for the continued operation of the enterprise, and continues conducting the enterprise up until the date of supply. Where, for example, a motel business is being sold, this exemption will usually apply, as the vendor is passing all stock, plant and equipment, employees and the benefit of the lease. This exemption also typically applies where a vendor or is selling a commercial property with a sitting tenant – that being seen as a small business consisting of a leasing enterprise;
- the farming business exemption. This is available where a farming business has been conducted on the property over the preceding five years, and the purchaser intends to continue that activity;
- GST withholding system. This applies to all property sales. To ensure that GST is paid, a system is in place whereby a purchaser must deduct the GST from the settlement monies, and remit that amount direct to the Tax Office;
- retail and commercial leases. GST is payable to the Tax Office by the supplier (the landlord) with respect to all supplies made. This obviously means GST is payable by the tenant in addition to the rent. Less obviously, it is also payable on the amount of all municipal, water and sewerage rates. This is despite the fact that, as between an authority and the owner, no GST is applicable to the those rates. The rationale of the Tax Office, as set out in the relevant ruling, is that the rates form part of the overall supply of the premises to the tenant.