1. © National Core Accounting Publications
Chapter 19
GST - Complex Issues
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GST Attribution
Attribution is the term used in the GST law to describe the way GST payable, input tax credits and adjustments are accounted for in order to work-out the net amount of for a tax period. GST payable, input tax credits and adjustments are attributed to tax periods rather than being remitted or refunded each time a taxable supply, creditable acquisition or adjustment is made.
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GST Attribution Rules
The most basic attribution rule is whether the business accounts for GST on a cash basis or on an accruals basis.
Cash basis
An entity is able to account for GST on a cash basis if its annual turnover is equal to or below $2 million.
GST payable on a taxable supply is attributed to the tax period when the consideration for the supply is received.
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GST Attribution Rules
Accruals basis
Attributes all the GST payable on a taxable supply to the earlier of the tax periods when:
any of the consideration for the supply is received, or
an invoice is issued for the supply.
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5. GST Attribution Transactions
Attribution on Land Sales
GST payable on the taxable supply of land under a completed standard land contract is attributed to the tax period in which settlement occurs, irrespective of whether a cash or accruals basis is used.
Attribution on Lay-bys
The attribution of lay-by sales is determined by the accounting method used.
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6. GST Attribution Transactions
Supply of goods on approval or on sale or return terms
“Ownership” of the goods remains with the supplier until the recipient accepts the goods.
The recipient of that supply will not usually make payment for the goods until title is transferred.
Therefore, attribution of GST payable on the supply or input tax credits occurs when title to the goods passes to the recipient.
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7. GST Attribution Transactions
Floor plan arrangements
Usually a dealer takes possession of the goods but is not invoiced and does not pay for those goods until a customer is found.
Ownership and title to the goods remain with the manufacturer, distributor or financier, while possession is granted to the dealer.
If the cash basis is used, GST payable is attributed to the tax period in which payment is received.
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8. GST Attribution Transactions
Floor plan arrangements
If the accruals basis is used, GST is attributable to the earlier of the tax period in which the business is issued with an invoice or receives any part of the consideration for the goods from the dealer.
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9. GST Attribution Transactions
Hire purchase contracts
The purchaser has possession of, and the right to use the goods, as well as an option to purchase those goods exercisable at or before the end of the hire period.
If the accruals basis is used, all GST payable under the agreement is attributed to the tax period in which the agreement was entered into.
If the cash basis is used, the GST payable under the agreement is attributed over the term of that agreement.
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Consideration
Central to the operation of the attribution rules is the receiving and providing of consideration.
A taxable supply or a creditable acquisition applies at the time consideration is made.
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11. GST and the Margin Scheme
The Margin Scheme is a way of working out the GST payable when property that is part of a business is sold. The Margin Scheme can only be applied if the sale of the property is taxable. The amount of GST a business must pay on a property sale is equal to one-eleventh of the margin.
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12. GST and the Margin Scheme
There are two methods which can be used to work out the margin:
The Consideration method
The Valuation method
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13. GST and the Margin Scheme
Consideration method
This method can be used regardless of when the property was purchased.
The margin is the difference between the property’s selling price and the original purchase price.
The following are not included as part of the purchase price: 
Costs for developing the property
Legal fees
Stamp duty
Other related purchase expenses
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14. Illustration: Consideration method
Westmantle Pty Ltd is registered for GST and carries on the business of property development. It purchased vacant land in 2006 for $100,000 and improved the property with roads and other services at a cost of $425,000 (GST inclusive), before entering into a contract to sell that land in April 2014 for $870,000. Settlement occurred in June Required: Using the consideration method, calculate the margin and the GST applicable on the sale. Also, calculate Westmantle Pty Ltd’s gross profit.
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15. Illustration: Consideration method
Solution:
The margin is:
 870,000 less 100,000 = $ 770,000
The GST applicable on the sale of land is:
$770,000 divided by 11 = $ 70,000
Gross Profit is:
Sales $ 870,000
less GST ,000
800,000
less Cost of property $ 100,000
Development costs 383, ,364
Gross Profit 313,636
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16. GST and the Margin Scheme
Valuation method
This method can only be used where the property was originally by the seller before 1 July 2000.
The margin, using the valuation method, is the difference between a property’s selling price and the value of that property as at 1 July 2000.
The valuation method can only be used if there is an approved valuation of the property as at 1 July 2000.
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17. Illustration: Valuation method
North Shore Pty Ltd is a GST registered property developer. It purchased land in 1998 for $300,000 and entered into a contract to sell that land in December 2013 for $1,460,000. Settlement occurred in February North Shore Pty Ltd obtained a professional valuation of the land as at 1 July 2000 of $800,000. Required: Using the valuation method, calculate the margin and the GST applicable on the sale.
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18. Illustration: Valuation method
Solution: The margin is: 1,460,000 less 800,000 = $ 660,000 The GST applicable on the sale of land is: $660,000 divided by 11 = $ 60,000 Note that because North Shore Pty Ltd chose to apply the margin scheme, the purchaser cannot claim a GST credit for the GST included in the price they paid for the property.
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