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This continues to be an area of focus of the ATO and failing to make adjustments for a change in use can result in unplanned cash flow issues, interest charges or penalties being imposed.
Where a property developer intends to sell new residential premises, it is eligible to claim the GST incurred on the development costs. However, where the property developer intends to lease the new residential premises, it is not eligible to claim the GST incurred on the development costs or ongoing operational costs.
Division 129 of the GST Act applies in circumstances where there is a change in the intended or actual use of residential premises. Property developers may be required to undertake adjustments to their previous GST recovery where a change in use has occurred. Depending on the circumstances, these adjustments may increase GST recovery, or result in recovered GST being repayable to the ATO.
Division 129 adjustments are made annually in the June tax period. As we approach 30 June, we recommend that property developers consider whether they have a requirement to make adjustments under Division 129 of the GST Act.
Division 129 is a complex area of GST legislation that can involve adjustment calculations that span periods of up to 10 years.
Grant Thornton has vast experience in undertaking Division 129 calculations for a range of property developers. We can identify opportunities to maximise additional GST claims and minimise GST repayments that arise from a change in use of residential premises.
If you would like further information on how we can assist your business with your Division 129 adjustments, please contact one of our indirect tax specialists.
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Receiving a notice to pay GST from the Australian Taxation Office (ATO) can be unsettling, particularly if it arrives unexpectedly or at a time when cash flow is under pressure. However, receiving a GST bill does not necessarily mean you have done something wrong.
