Warning on GST Avoidance Schemes
The Tax Office has cautioned against the use of certain schemes to manipulate GST requirements. One of the major schemes with widespread use purports to avoid the payment of GST on the sale of new homes and units. In normal circumstances, the sale of new residential premises attracts GST whereas the sale of second hand homes or units does not (unless such sale constitutes the sale of property not predominantly used for residential accommodation).
Under the scheme, a joint venture arrangement is made between the developer and the property marketer, whereby the developer purports to sell a new home or unit to the marketer without GST – for example, where a nominal purchase price is agreed upon. Thus, when the property is sold to a purchaser by the marketer, the home is no longer new and no GST is charged.
Additionally, even though GST has not been charged, the developer still forwards a claim for input tax credits on building and acquisition costs. Funds received from such claims are split between the developer and the property marketer.
Another common scheme used by traders is to seek to maintain a timing advantage between a vendor and a purchaser by using a ‘cash and credit’ accounting system, such that the purchaser receives GST refunds many years before any GST is paid to the Tax Office.
In the example used by the Tax Office, the vendor charges an inflated price, say, $550,000 inclusive of GST (being $50,000), to the purchaser for goods worth $10,000. The purchaser makes an initial deposit of $1,000 with the balance to be paid in instalments over a number of years. The purchaser will make a claim for input tax credit of $50,000 immediately. However, the vendor remits GST only in relation to the deposit of $1,000 and will continue remitting the balance of GST as and when instalments of the purchase price are due.
This scheme is generally used by related parties in a particular transaction and in many cases, instalments are not paid and no goods are actually acquired.
The Tax Office has warned that such GST avoidance schemes, including the two outlined above, may breach the anti-avoidance provisions of the GST legislation and in certain severe cases, criminal charges may be laid. This preliminary advice will be confirmed by the Tax Office in due course.
