However GST will not apply to the sale of residential properties that are not new. Existing residential properties will be input taxed, which means they are not subject to GST and no input tax credits can be claimed for purchases acquired to make the supply.

A standard contract for the sale of land, such as those approved by the law societies or real estate institutions in each state, provides for the payment of a deposit with the balance payable on completion in exchange for a duly executed transfer.

The liability for paying GST under such a contract generally arises when settlement takes place. If a contract is not a standard contract the vendor needs to examine the terms of the contract to determine when the liability arises.

When a deposit paid by a buyer on exchange of contract or agreement to sell is held by a stakeholder, as trustee for the vendor and the buyer, GST is only payable if the deposit is either forfeited or applied as part of the consideration for the purchase (this usually happens when settlement takes place).

GST will generally be payable on the full sale value. However, a seller may choose to calculate the GST under the margin scheme. Information on the margin scheme is contained later in this booklet.

GST will also apply to selling commissions and other selling costs such as fees charged by solicitors and surveyors and advertising costs (irrespective of whether the property is newly constructed or existing).

Sellers of residential property that is not new, will not be entitled to input tax credits for GST included in the expenses associated with the sale of the property, such as solicitor fees, selling agent commissions and advertising costs.

First home buyers
From 1 July 2000 first home buyers will be eligible for non-means tested assistance of $7000 under the First Home Owner's Scheme. The scheme will be administered by the States and Territories.

Further information about the scheme will be made available once the arrangements are finalised.

Valuation rules for construction contracts
Special valuation rules apply to construction agreements made before 1 July 2000 for the supply of goods or real property made available after that date. The valuation rules apply to the supply of goods or real property where the supply is the construction, major reconstruction, manufacture or extension of a building or civil engineering work.

Broadly, GST is payable on the difference between the value of the supply of the building or civil engineering work and the value of materials permanently incorporated in, or affixed to, the site at the start of GST.

For further information see the ATO GST Bulletin GSTB 1999/2 How to determine the value of construction work in progress, or phone the business Tax Reform Infoline on 13 24 78.

Off-the-plan sales
A contract to buy a new residential unit off-the-plan or a house and land package from a developer, project home builder or speculative builder would not generally be a construction contract. This is because what is being supplied is a completed residential premises, not the construction of those premises. If an agreement to sell a residential property off-the-plan is made available on or after 1 July 2000, GST will be payable on the sale. However, the seller may choose to use the margin scheme for calculating the GST payable. The margin scheme is discussed later in this booklet.

Builders will need to consider the GST implications when entering into an agreement for property to be made available after 1 July 2000. If agreements do not provide for GST in the price, the builder will have to bear the cost of GST.

Renting residential property
GST is not included in residential rents, as they are an input taxed supply. Any GST included in the price of goods and services used in connection with the input taxed supply (such as plumbing services) cannot be claimed as input tax credits by the landlord.

For rental properties these inputs include repairs and maintenance (such as painting, electrical and plumbing work), the replacement of appliances (such as dishwashers and clothes dryers), and management, advertising, legal and accountancy services. Landlords will not be entitled to input tax credits for GST included in the price of newly constructed property acquired for residential rental.

Bodies corporate
A body corporate (sometimes known as an owner's corporation) with an annual turnover of $50 000 or more, must register for GST. A body corporate with an annual turnover of less than $50 000 may choose to register.

A registered proprietor will be entitled to claim input tax credits for GST included in levies relating to commercial properties.

Commercial residential property

Short-term accommodation
GST will apply to the supply of short-term accommodation (periods of less than 28 days) in commercial residential premises. Commercial residential premises are premises typically used for short-term accommodation. They include hotels, motels, inns, hostels, caravan parks, camping grounds and similar premises.

Short-term accommodation

Donovan and Jacinta are partners who own and run a guest house in the Blue Mountains west of Sydney. The guest house turns over $200 000 a year. As their turnover exceeds $50 000 a year, Donovan and Jacinta's partnership will need to register for GST.

GST is payable on the supply of accommodation, meals and other services they supply. The partnership will be entitled to input tax credits for GST included in taxable supplies such as taxable foods and beverages, linen, electricity, telephone, gas and advertising.

Turner Enterprises holds a six-day workshop at Donovan and Jacinta's guest house.

The workshop includes meals and beverages and accommodation for Turner staff. Turner Enterprises will be able to claim an input tax credit for the GST that Donovan and Jacinta charge, provided Donovan and Jacinta give them a tax invoice.

A business is classified as providing predominantly long-term accommodation if at least 70 per cent of its guests stay 28 days or more. Businesses that provide predominantly long-term accommodation can choose to pay GST on 50 per cent of the price for the guest's entire stay (that exceeds 28 days or more), or they can treat the supply as being input taxed.

All supplies of long-term accommodation by a business must be treated the same way, that is either concessionally or input taxed, and the choice of treatment cannot be changed for 12 months.

Concessional GST treatment of long-term accommodation

Chris' Cabins owns 50 on-site cabins. Forty of the cabins, or 80 per cent, are currently occupied by guests who stay 28 days or more, or 'long term'.

Chris chooses to pay GST on the supply and uses the 50 per cent valuation method. He will include GST in the room price for guests who stay (continuously) 28 days or more, on 50 per cent of the price of their stay. Chris is then entitled to claim input tax credits for goods and services purchased to make the supply.

Chris takes a new booking for a guest wishing to stay in one of his cabins for six weeks. Chris charges $110 (including GST) a week for cabin accommodation. The normal value of the accommodation (including GST) is $660. The GST-exclusive value of the accommodation is $660 x 10/11 = $600.

Chris calculates $33 GST is payable on 50 per cent of the total price ($330). The total cost of the accommodation, including GST, is therefore $633, being GST-exclusive value $600 plus $33 GST = $633.

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Commercial property

Selling commercial property
GST will apply to the sale of all commercial property by a registered business on or after 1 July 2000. Under the transitional rules, GST will apply to commercial property made available (usually the date of settlement) to the buyer on or after 1 July 2000. The seller must pay GST on the full amount of the sale value of the property unless the seller is eligible for and chooses to use the margin scheme.

If the buyer is registered for GST the buyer may be able to obtain an input tax credit for the GST included in the selling price
of the property. If the buyer is not registered or will use the property to make input taxed supplies, the buyer may prefer that the seller calculate GST using the margin scheme. However, there are restrictions in the circumstances in which the margin scheme can be used. Further information on the margin scheme is contained in this booklet.

Renting commercial property
GST will apply to leases of commercial property entered into from 1 July 2000. Leases entered into before 1 July 2000 that continue beyond that date will be subject to the following transitional provisions:

• If the lease was entered into before 2 December 1998, full consideration was paid before that date and there is no review opportunity, GST will not apply to the lease for its duration. If there is a review opportunity it will not be subject to GST until that time.

• If the lease was entered into on or after 2 December 1998 and before 8 July 1999 and the lessee is able to obtain a full input tax credit for the GST included in the rent, GST will not apply to the lease until 1 July 2005 or the first review opportunity (whichever is the earlier).
• If the lease was entered into on or after 2 December 1998 but before 8 July 1999 and the tenant would not be able to obtain a full input tax credit for the GST included in the rent, GST will apply to the lease from 1 July 2000.
• If the lease is entered into after 8 July 1999, GST will apply from 1 July 2000. For more information on lease arrangements and contracts, please refer to the ATO's transitional fact sheet, GST transitional arrangements - contracts which span the implementation of GST, or phone the business Tax Reform Infoline on 13 24 78.

Lease inducements on property
Fit-outs
If a landlord provides a free fit-out to the tenant there is no additional GST liability as the fit-out would simply be supplied as part of the rented premises. The landlord would be charged GST by the fit-out contractor and would generally be able to claim an input tax credit. The landlord would not have to pay any GST on the supply of the fit-out to the tenant provided no other consideration is made.

GST is payable on cash incentives such as lease premiums paid by tenants to secure a lease. The lessor is liable to pay GST on the incentive received.

The surrender of a lease for consideration is a taxable supply. If payment is made by a tenant for the surrender of a lease, GST is payable by the lessor. If a payment is made by a lessor to a tenant for the surrender of a lease, GST is payable by the tenant.

Sale of farmland
The supply of farmland will be GST-free if the supplier has carried on a farming business on the land for at least five years before the sale. In addition, the purchaser of the farmland must intend to operate a farming business on the land.

A large farm may be subdivided into a number of smaller farms and sold off. These supplies would be GST-free provided each of the farms can operate separately.

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Margin scheme
The margin scheme provides some relief in relation to property transactions and allows for a reduced amount of GST to be paid.

It applies to the supply of freehold interests in land, strata units and long-term leases, including those held on 1 July 2000.

If you are registered or required to be registered for GST and you make a supply of a freehold interest strata unit or a long-term lease, the supply is subject to GST.

GST may be calculated on the full value of the supply or on the margin.

Margin Scheme

On 12 May 2000 Bob, a property developer, has a block to sell. He aims to sell the block in November 2000 for $100 000 plus the GST on the sale.

Without using the margin scheme, Bob would need to sell the block for $110 000 to cover the GST payable on the sale. The GST would be 1/11th of the sale price, $10 000.

However, under the margin scheme Bob could sell the block for less than $110 000 and still clear $100 000.

The block is valued at $80 000 as at 1July2000.

Under the scheme GST is only calculated on the difference between the 1 July 2000 valuation and the final sales price. If he sells the block for $102 000, the margin is $22 000, (that is, $102 000-$80 000). The GST payable on this amount is 1/11th of $22 000, that is $2000 that Bob has to pay to the Tax Office.

Bob would therefore be able to market the block at a lower price of $102 000, and make the price more attractive to prospective private buyers not claiming an input tax credit.

Sale of property

If Bob buys a block of land in September 2000, where GST was not calculated using the margin scheme, and claims an input tax credit for the GST included in the purchase price, Bob would not be able to use the margin scheme when he sells the property.

If Bob buys the block from a private owner, no GST would have been included in the price and no input tax credit would be available. Bob would have the option of using the margin scheme when calculating the GST payable on his subsequent sale of the property.

The margin is your sale price (including GST) less your original purchase price or if you held the interest at 1 July 2000, the valuation of that interest at that date.

You should not include the cost of any improvements to the land made on or after 1 July 2000 when you work out the original purchase price.

If your original purchase price is more than your sale price then under the margin scheme, no GST is payable on the sale because there is no positive margin.

The margin scheme ensures that GST is payable only on the value added by your enterprise, for example, the value added by a property developer who supplies new houses.

If you purchase land and subdivide it, you apportion the purchase price over the total number of subdivided blocks of land.

Margins on subdivided land

Hilary Enterprises Pty Ltd, a mid-sized developer, acquires a block of land on the outskirts of Adelaide for $300 000 in July 2000. The land is subdivided into 6 blocks of equal size and amenity.

The company chooses to use the margin scheme to calculate the GST payable on the subsequent sale of the blocks. In these circumstances it is appropriate to apportion the consideration for the acquisition equally to the 6 blocks, that is, $50 000 each. The company sells 4 blocks for $77 000 per block.

This means the margin on each block is $27 000 (that is, $77 000-$50 000). The company pays GST for each block of 1/11th of the margin, that is, $2454.

The company later sells the remaining two blocks for $90 000 each (including GST). The margin on these two blocks is $40 000 (that is, $90 000-$50 000). The GST the company is required to pay on the sale of the last two blocks is 1/11th of the margin, that is, $3636 per block.

Had the company opted for the full taxation rather than the margin scheme, its GST liability on the sale of the initial four blocks would have been $7000 per block (that is, 1/11th of the sale price of $77 000).

The later sale of the remaining two blocks would have resulted in GST of $8181 (that is, 1/11th of the sale price of $90 000) per block.

However, a registered buyer of any of the blocks would be able to claim input tax credits for GST under this treatment, to reduce the net cost.

In that case GST would be payable on the whole value and the purchaser can claim the GST as an input tax credit.

Margin method for freehold interests, strata units or long-term leases held on 1 July 2000
If you were registered, or required to be registered, for GST on 1 July 2000 and you held a freehold interest, strata unit or a long-term lease at that date and you want to use the margin scheme to calculate GST payable on the sale, you must use the value of the interest, unit or lease as at 1 July 2000 to work out the margin on the supply. You do not use the original purchase price.

Off-the-plan sales

Williams Building Services Pty Ltd plans to build 12 town houses. To fund development costs and obtain finance, the company sells the town houses off-the-plan for $200 000 each.

The town houses will be completed in early August 2000. Settlement is due on completion. Williams Building Services will be liable for the GST on the sale of the town houses as it makes the houses available to buyers on or after 1 July 2000. The company chooses to use the margin scheme. GST will only be payable on the value added after 30 June 2000. Williams Building Services will need to obtain a valuation of each town house at the start of 1 July 2000. GST will only apply to the margin of each town house, that is, the selling price of $200 000 each, less the valuation amount.

If you were registered, or required to be registered, for GST after 1 July 2000, you must get a valuation on the day of effect of your registration or the day on which you apply for registration (if it is earlier).

The requirements for valuations under the margin scheme will be issued by the ATO shortly.

GST and associated selling costs
Associated property selling costs such as fees charged by solicitors, surveyors, pest and building inspectors, accountants and financial advisers will be subject to GST (regardless of whether the property is residential, non-residential, newly constructed or existing).

Associated selling costs

Natasha sells her house for $150 000. The agent charges a 2 per cent selling commission plus GST (that is, $3000 + $300 GST = $3300). Advertising costs amount to $330, including $30 GST. Legal and other costs add up to $825, including $75 GST.

Natasha effectively pays $405 ($300 + $30 + $75) for the GST included in the incidental expenses on the sale of her house. However, GST will not apply to the sale of the house itself.

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GST and real estate agents
Real estate agents with an annual turnover of $50 000 or more must register for GST purposes and lodge Business Activity Statements. Turnover includes all sales commissions, valuation fees, agent fees and charges, but excludes the value of properties sold or leased.

Agents generally incur expenses on behalf of the owners of properties, such as advertising expenses, costs relating to repairs and maintenance and cleaning. Agents should ensure they receive appropriate tax invoices for expenses in excess of $50. Without a tax invoice no input tax credits can be claimed for expenses incurred in relation to the property.

Agents are not entitled to input tax credits for costs incurred on behalf of the owners, that are later reimbursed.

Management services are taxable supplies and subject to GST.

GST applies on the lease of all commercial properties. GST does not apply to residential leases, as these are input taxed.

Many property owners will request tax invoices from agents for services the agents perform. Specifically, owners and sellers of commercial properties will need tax invoices for agents' fees to claim input tax credits. Developers and builders selling new residential properties should also request tax invoices for fees paid to agents for services.

Sales commissions
GST will apply to sales commissions. In most cases the liability for GST will arise at the time of settlement because the sale and the right to the commission income does not arise until then. However, if an agent becomes entitled to a commission at an earlier point such as on obtaining a binding offer, GST will be payable at that time.

Auctions
In advance of the auction, the auctioneer will need to know whether or not the seller is registered for GST. Sales on behalf of registered vendors will generally be subject to GST. Sales for unregistered sellers will not be subject to GST. The auctioneer also needs to know if the seller, where eligible, intends to apply the margin scheme.

Before an auction begins, the auctioneer needs to inform bidders about:

• the registration status of the vendor
• whether the property being sold is subject to GST, and if so
• how GST will be calculated (that is, whether the seller will apply the margin scheme).

Sales that are subject to GST
If the margin scheme applies, the auctioneer should announce to bidders that bids will include GST. This means that the knock down bid is the sale price and GST payable by the seller is 1/11th of the margin.

If the auctioneer conducts the auction on a GST-inclusive basis, the knock down bid will be the total sale price. The GST payable by the seller is 1/11th of this price.

If the auctioneer conducts the auction exclusive of GST, the knock down bid will be the value. Where the vendor is registered, GST will need to be added to obtain the selling price. A registered purchaser will be entitled to an input tax credit where the property is purchased for business use.

Buyers of property at auctions (as with other business expenses) will need to obtain a tax invoice from the auctioneer or the business auctioning the property if they intend to claim an input tax credit.

Insurance
The supply of most types of general insurance is a taxable supply and is subject to GST. General insurance includes policies for motor vehicles, third party property, fire, theft and loss of income insurance.

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Sale of a going concern
The supply of a going concern is GST-free in the following circumstances:

• the purchaser must be registered or required to be registered for GST
• the supplier must carry on the business until it is sold
• all of the things required for the continued operation of the business must be supplied, and
• both parties must agree in writing that the supply is of a going concern.

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List of definitions

These are some of the new terms used in this booklet.

Acquire
Acquire includes buying goods and services for your enterprise, and other transactions as explained in the definition of acquisition.

Acquisition
Acquisition is a very broad term. It includes what you buy (goods and services and anything else) for your enterprise. It also includes many other transactions, such as getting advice or information, taking out a lease of business premises or hiring business equipment.

Adjustments
Adjustments are the changes you may need to make on your Business Activity Statement to increase or decrease your net GST amount payable or refundable for a tax period.

The changes may be needed to:

• vary the GST payable on supplies you have made because something has happened to change the GST payable by you, and included on a previous activity statement, or
• vary the input tax credits for your acquisitions because something has happened to alter the amount of input tax credits you claimed on a previous activity statement.

Adjustment note
Adjustment notes are generally issued by suppliers. They detail changes to consideration for a supply. You will need an adjustment note from the supplier before you can claim additional input tax credits for an acquisition for which you have been required to pay more.

Adjustment period
This is the tax period in which you may need to make some adjustments for acquisitions or importations. These are the adjustments to claim more or pay back some input tax credits because your planned use of an acquisition or importation in your enterprise has changed. The adjustment period for these adjustments is the tax period which ends as close as possible to 30 June. All other adjustments are done in the tax period in which you find out about the need to make the adjustment. This may not be the tax period which ends on 30 June.

Attributing
Attribution rules determine to which tax periods your GST payable and input tax credits belong. The rules for attributing GST payable and input tax credits to tax periods are different, depending on whether you account on a cash basis or a non-cash basis.

Australian Business Number
The Australian Business Number is the new identifier for your dealings with the ATO and for future dealings with other departments and agencies.

Business Activity Statement
This is the single form you use to account for GST and some other taxes. A Business Activity Statement (sometimes referred to as an activity statement) must be lodged by a registered entity for each tax period.

Consideration
Consideration has a wide meaning for GST purposes. Any payment (in money or kind) made in return for a supply is consideration. It includes doing something or not doing something in response to a supply, or to get someone to make a supply.

Creditable acquisition
You make a creditable acquisition if:

• you acquire a thing for a creditable purpose
• the supply of a thing to you is a taxable supply
• you provide, or are liable to provide, consideration for the supply, and
• you are registered or required to be registered.

Creditable purpose
This applies to something acquired in carrying on your enterprise. Remember that an acquisition for making input taxed supplies or acquired for private use is not for a creditable purpose.

Commercial residential premises
Commercial residential premises means:

a) a hotel, motel, inn, hostel or boarding house, or
b) premises used to provide accommodation in connection with a school, or
c) a ship that is mainly let out on hire in the ordinary course of any business of letting ships out on hire, or
d) a ship that is mainly used for entertainment or transport in the ordinary course of a business of providing ships for entertainment or transport, or
e) a caravan park or a camping ground, or
f ) anything similar to residential premises described in paragraphs (a) to (e).

However, it does not include premises to the extent that they are used to provide accommodation to students in connection with an educational institution that is not a school.

Enterprise
An enterprise includes an activity or series of activities done in the form of a business or in the form of an adventure or concern in the nature of trade.

Entity
An entity is an individual (for example a sole trader), a body corporate (a company), a corporation sole (an ongoing paid office, for example a bishopric), a body politic (for example a local government body), a partnership, an unincorporated association or body of persons, a trust, or a superannuation fund.

GST-free supply
If a supply is GST-free you do not charge GST on the supply, but you are entitled to input tax credits for anything acquired or imported for use in your enterprise.

Input tax credit
You are entitled to an input tax credit for the GST included in the price you pay for an acquisition or the GST paid on an importation if it is for use in your enterprise, but not to the extent that you use it to make input taxed supplies. You will need to have a tax invoice to claim an input tax credit (except for purchases of $50 or less).

Input taxed supply
If a supply is input taxed you do not charge GST on the supply, but neither are you entitled to input tax credits for anything acquired or imported to make the supply.

Long-term accommodation
Long-term accommodation is provided to an individual if commercial accommodation is provided for a continuous period of 28 days or more in the same premises:

a) to that individual alone, or
b) to that individual, together with one or more other individuals who:

i) are also provided with that commercial accommodation, and
ii) are not provided with it at their own expense (whether incurred directly or indirectly).

Margin
The amount by which the consideration for the supply exceeds the consideration for the acquisition of a freehold interest, stratum unit or long-term lease.

Margin scheme
The GST payable on a taxable supply of a freehold interest, strata unit or long-term lease may be calculated under the margin scheme.

Predominantly for long-term accommodation
Commercial residential premises are predominantly for long-term accommodation if at least 70 per cent of the individuals provided with commercial accommodation in the premises are provided with commercial accommodation as long-term accommodation.

Real property
Real property includes:

a) any interest in or right over land, or
b) a personal right to call for or be granted any interest in or right over land, or
c) a licence to occupy land or any other contractual right exercisable over or in relation to land.

Residential premises
Land or building occupied or intended to be occupied as a residence, including a floating home.

Supplies
Supplies include the goods and services sold in your enterprise. They also include many other transactions such as when you provide advice or information, lease out commercial premises or provide hire equipment. Not all supplies are taxable supplies.

Supply
Supply is a very broad term and includes selling goods and services, providing advice or information, and other transactions as explained in the definition of supplies.

Taxable importations
GST is payable on importations unless the goods qualify for certain customs duty concessions or would have been GST-free or input taxed if they had been supplies. GST is payable on taxable importations regardless of whether you are registered or required to be registered for GST purposes.

Taxable supply
The term is widely defined to include most supplies (goods, services and anything else) you make. A supply is not a taxable supply if it is GST-free or input taxed.

Tax invoice
A tax invoice is a document generally issued by the supplier. It shows the price of a supply and indicates whether it includes GST and may show the amount of GST. It must show other information, including the Australian Business Number of the supplier. You must have a tax invoice before you can claim an input tax credit on your Business Activity Statement (except for small amounts).If you do not have a tax invoice you should delay making a claim until you do.

Tax period
A tax period is the length of time for accounting for GST on your Business Activity Statement. It may be quarterly or monthly, depending on your annual turnover. Quarterly tax periods are periods of three months ending on 31 March, 30 June,30 September and 31 December. Monthly tax periods end on the last day of each calendar month. An activity statement must be lodged for each tax period.

Further information (including other industry-related booklets) is available at http://www.taxreform.ato.gov.au/.   You can also phone the ATO Tax Reform Infoline on 13 24 78 or obtain A Fax From Tax on 13 28 60.