Issue
Can the entity, a property developer, include an amount incurred for legal fees, as part of the consideration for the acquisition of the interest in a property under section 75-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it subsequently sells that property and chooses to apply the margin scheme?
Decision
No, the entity cannot include an amount incurred for legal fees, as part of the consideration for the acquisition of the interest in a property under section 75-10 of the GST Act, when it subsequently sells that property and chooses to apply the margin scheme?
Facts
The entity is a property developer. The entity acquired real property after 30 June 2000. The entity incurred legal fees in the course of acquiring that property.
The entity is now selling the property as a taxable supply. The supply satisfies the requirements in section 75-5 of the GST Act, and the entity is choosing to apply the margin scheme in working out the amount of goods and services tax (GST) payable on the supply.
The entity is registered for GST.
Reasons for Decision
Subsection 75-10(1) of the GST Act provides that if a taxable supply of real property is under the margin scheme, the amount of GST on the supply is 1/11 of the margin for the supply.
The margin for the supply is the amount by which the consideration for the supply exceeds the consideration for an entity's acquisition of the interest, unit or lease in question (subsection 75-10(2) of the GST Act).
As the entity purchased the property after 30 June 2000, the transitional rules in subsection 75-10(3) of the GST Act do not apply. Therefore, the consideration for the entity's acquisition of the interest in the property is the purchase price of that property.
In this case, the entity incurred legal fees for services obtained in relation to the acquisition of the property. The legal fees do not represent consideration for the entity's acquisition of the interest in the property; but rather, represent the consideration for the entity's acquisition of a separate supply of legal services.
Therefore, the entity cannot include legal fees incurred in acquiring the property, as part of the consideration for the acquisition of the interest in the property under section 75-10 of the GST Act, when it subsequently sells that property and chooses to apply the margin scheme in working out the amount of GST payable on the supply.