JobKeeper payments not included in annual turnover
The ATO has clarified an important point in relation to the tax treatment of the JobKeeper payments received by an entity.
The ATO confirmed that although the JobKeeper payments are ordinary income, they are not derived in the ordinary course of business, and therefore not included in aggregated annual turnover.
This means that a number of businesses could now be eligible for a range of tax concessions where their aggregated turnover has dropped below $10m.
GST on reimbursement by tenant of landlord expenses
Payment by the landlord of local council rates, water rates, land tax and other government charges is not subject to GST because of the operation of Division 81 of the GST Act.
If the tenant is required under the terms of the lease to reimburse the landlord's payment of an Australian tax or an Australian fee or charge, Division 81 of the GST Act does not apply to the tenant's reimbursement as this is not the payment of an Australian tax or an Australian fee or charge by the tenant.
The water and council rates etc. are the landlord’s liabilities and when on-charged to the tenant they lose their character and form part of the consideration for the supply of the premises. If the supply of the premises is a taxable supply, then GST is payable on the consideration paid by the tenant including the reimbursement amounts.
Instant asset write off on primary production assets
There are certain primary production assets not eligible for the instant asset write-off - paragraph 8.28 of the Explanatory Memorandum states:
'A depreciating asset held by an entity does not qualify for temporary full expending if the entity, or another taxpayer has deducted or can deduct amounts for the asset under Subdivision 40-F of the ITAA97 (which applies to primary production depreciating assets)'.
Subdivision 40-F of the ITAA97 applies to water facilities, horticultural plans, fodder storage assets or fencing assets.
Deductions for vacant land
Where vacant land is held and the intention is to build a rental property on it, then from the 2019-20 income year, expenses for holding the land cannot be claimed as deductions until the property is available for rent. This also applies to vacant land where these holding costs may have been claimed in previous years.
These expenses can be included in the cost base of the property for capital gains tax purposes.
This change does not apply to land:
- held by certain entities (e.g. a corporate tax entity and a public unit trust)
- used in a business or primary production
- that is vacant due to exceptional circumstances like a natural disaster or major fire.
If the land is vacant because the rental property was destroyed by a natural disaster like a fire, check if the exceptional circumstances provision applies which may allow the costs of holding the land to be claimed for up to three years while the rental property is being rebuilt.
GST on new residential premises
The sale of existing residential premises is considered to be ‘input-taxed’ – this means GST credits cannot be claimed on any purchases and GST is not charged on sale.
Where a residential home has been built with the intention to sell it at a profit, or rent out the property, there are some key GST issues that need to be considered when supplying ‘new’ residential premises.
The sale of ‘new’ residential premises is subject to GST where:
- it has not previously been sold as residential premises
- it has been created through substantial renovations
- a new building replaces a demolished building on the same land.
Resesidential premises is no longer new and therefore not subject to GST on sale if it has been 5 years since:
- it first became a residential premises
- it was last substantially renovated
- it was built to replace demolished premise.
Change in creditable purpose – When there is a change in how the property is used it may result in a change in 'creditable purpose' and can alter what GST credits that can and can't be claimed.
Events can include:
- moving into new residential property and occupying it privately, while trying to sell it
- building to sell, but then deciding to rent it out while finding a buyer.
Records need to be kept to determine if an adjustment to GST credits already claimed has to be made.
GST at settlement - New residential homes, land and potential residential land may be subject to the 'GST at settlement' withholding measure.
The margin scheme – this is a way of working out the GST payable when selling property as part of a business. Generally the GST is based on the difference between:
- the price that paid for the property when first purchased it, and
- the subsequent sale price of the property.
The margin scheme can only be applied if:
- the sale of the property is taxable
- the seller is eligible to use it
- there is a written agreement with the purchaser before the settlement date to sell the property using the margin scheme.
Built to rent - This refers to residential developments built with the intent to rent out long term once complete. Build-to-rent residential accommodation is input taxed, which means:
- GST credits cannot be claimed on construction and other costs relating to leasing a residential home
- GST is not charged on rent received.
