S M Ho & K W Loh & T T Low & W W Orr and FCT [2018] AATA 3911
There is a recent case involving going concern, margin scheme and other property issues at the AAT.
Fact:
A developer purchased two adjacent lands each with an existing building on it. The developer subdivided the lands into four lots, with two new residential building constructed on each land, while maintaining the existing buildings, as demonstrated below:
Issues, arguments and decisions
A. Lot 1: going concern
The taxpayer contended that the sale of the whole building is subject to going concern despite the fact that only 50% of it was leased at the time. However the Australian Taxation Office (ATO) argued that only 50% was eligible for going concern.
The AAT accepted that the whole building could be 100% subject to going concern for partly tenanted buildings in certain circumstances, such as when the untenanted parts of the building are:
- Being actively marketed
- Undergoing temporary repairs that prevent it from being leased out
- Still part of the enterprise despite not being leased, e.g. as a storage or building manager’s office
Ultimately the AAT did not find any evidence that supported the taxpayer’s arguments and did not accept that the taxpayer’s use of the vacant floor fell into any of the above categories.
B. Lot 2: new residential premises
The taxpayer argued that GST was not applicable on the sale of the residential premises as it is input taxed. On the other hand, the ATO argued that the property was subject to substantial renovation and therefore was classified as new residential premises and subject to GST.
The AAT agreed with the ATO that the property has been subject to substantial renovation and should be classified as a new residential premise and subject to GST.
C. Lot 3 & Lot 4: margin scheme calculation
The taxpayer originally included construction costs in the calculation of the margin, but in the end agreed with the ATO that construction costs do not form part of margin scheme calculation.
Generally speaking, the margin is calculated as the difference between purchase price and selling price (including settlement adjustments) using the consideration method.
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