GST avoidance on the sale of new homes and units under investigation

9 January 2004

The Tax Office issued a Taxpayer Alert on 8 January 2004 warning property developers and marketers that arrangements used to avoid paying GST on the sale of new homes are being investigated.

Purported joint venture arrangements between developers and property marketers are currently being promoted with the claim they can be used to avoid GST on the sale of new homes and units.

Tax Commissioner Michael Carmody said developers and property marketers who use provisions of joint venture arrangements to avoid GST will attract the attention of the Tax Office.

"We query whether the structures adopted under these arrangements are truly joint ventures," Mr Carmody said.

"This type of arrangement is also likely to be caught by the general anti-avoidance provisions of the GST legislation."

"I first signalled the Tax Office's concern about these types of arrangements in June last year," Mr Carmody said.

The sale of new homes and units generally attracts GST while the sale of an existing home does not.

Provisions within these joint venture arrangements enable the developer to sell a new home to the property marketer without charging GST.

When the marketer sells the home to a customer, it claims the home is no longer new and does not charge GST.

Although no GST is charged, the property developer still claims input tax credits on acquisition and building costs. These funds are then split between the developer and marketer.

This Alert is the Tax Office's preliminary view and will be followed by a final ruling or determination in the next few months.

A copy of this Alert is on the Tax Office web site, www.ato.gov.au/atp.