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In WYPF and Commissioner of Taxation (Taxation) [2021] AATA 3050 a developer in the ACT paid $14,000,000 (‘Monetary Consideration’) for the land to the ACT Land Development Authority, and also carried out certain works described as ‘Preparatory Works’ of $29,700,648.39 and other works described as ‘Building Works’ of $77,034,265.61. 

The taxpayer wanted to include all these amounts in the acquisition costs for the margin scheme.

The Commissioner accepted that the Monetary Consideration was paid for the acquisition of the land and that the Preparatory Works constitute non-monetary consideration for the acquisition of the land. However, the Commissioner stated that the Building Works, which substantially comprised the construction of apartments for sale by the applicant, were carried out for the applicant’s own commercial ends. So those works are not non-monetary consideration for the applicant’s acquisition of the land.

But what makes this case interesting is the developer had completed its GST returns conservatively and only treated the Monetary Consideration as consideration for the acquisition of the land, not the Preparatory Works or the Building Works. As such they had overpaid GST and wanted a refund. But the Commissioner stated that this overpaid GST amounts are not refundable unless the taxpayer reimburses the recipient of the supply for the excess GST that it passed on.

As I expected the AAT concluded Building Works were not consideration… “the Building Works were not non-monetary consideration for the applicant’s acquisition of the Consequent Leases. Borrowing the applicant’s characterisation of the transaction documents, I would add that the view that the Building Works were carried out not to obtain the Consequent Leases but in pursuit of its own business objectives of constructing and selling the apartments for profit reflects the commercial and practical reality of the development.” So the developer does not get to include the $77 million of building works into the acquisition costs for the margin scheme… 

But can the developer get a refund of GST from including the $29 million of Preparatory Works in the acquisition costs for the margin scheme? The Commissioner argues he has to first pass on the GST he will get back as the GST was reflected in the price of the units. However, the AAT correctly stated it was not.

The applicant submits that it did not pass on any GST in the prices it obtained for the apartments it sold. In essence, the applicant’s argument, supported by the evidence of its Director, is that it sold the apartments for the price the market would bear. While it carried out a feasibility study that took into account an estimate of GST at an effective rate of 7%, the applicant did not work up a price on a cost plus a margin basis. This is because it was constrained by the market. The Director being experienced in the property market was aware that purchasers of residential apartments would not accept a mark-up of prices for GST. He said the applicant had based pricing of the apartments on his awareness of the market value of comparable ACT apartments.

So the sensible answer prevails. You can’t include the building costs and property is sold at whatever the market will pay…