GST – Complex issues:
Instructions: The following case study is related to complex tax issues. You are required to do detail research on ATO website complete this task. East Point Pty Ltd is registered for GST and carries on the business of property development. It purchased vacant land in 2004 for $100,000 and improved the property with roads and other services at a cost of $425,000, before entering into a contract to sell that land in April 2012 for $870,000. Settlement occurred in June 2012.
Required: Using the consideration method, calculate the margin and the GST applicable on the sale. Also, calculate East Point Pty Ltd’s gross profit.
East Point Pty Ltd case: GST PAYABLE AS PER CONSIDERATION METHOD
The consideration method of calculating GST payable using the margin scheme irrespective of when the property was purchased.
As per the consideration method,
Margin = Sale price - Purchase price.
Sale price includes settlement adjustments mentioned in contract of sale.
Purchase price does not include any of the following stamp duty,legal fees,options you purchased,costs for developing the property,any other related purchase expenses.
Margin=$870,000-$100,000
Margin=$770,000
GST Rate is 10%
Hence the margin will be inclusive of GST component.
Hence, we consider GST as equivalent to 11. Where the GST is 1 and Profit is 10.
Hence GST payable is $770,000*1/11
GST payable is $ 70000
Profit on the sale of transaction is $ 700000.
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