Developer of $118m Canberra apartments loses GST stoush with ATO

An experienced property developer has lost a bid to overturn a Tax Office order to pay millions in extra GST incurred during a 180-unit apartment complex in Canberra worth around $118 million.

In a recent judgment, the Administrative Review Tribunal sided with the ATO and rejected all arguments raised by a developer with the pseudonym “SFQV Group”, ruling it misapplied GST attribution rules and was not entitled to refunds.

Advice from accountants PwC also played a key role in SFQV’s arguments about excess GST and the discretion of the Commissioner of Taxation to issue refunds.

ART deputy president Gina Lazanas noted the case touched on a “number of issues … tax periods” and “numerous possible permutations” relating to GST.

On all issues, she held “SFQV has not discharged the burden of proving that the assessments of net amounts of GST are excessive”, affirming both assessment objection decisions challenged.

SFQV’s project began in 2014 when it was granted a 99-year Crown Lease by Canberra’s Land Development Agency (LDA).

In return, it paid $5.4 million in cash and agreed to develop the land according to the LDA’s specifications.

It finished building 180 residential apartments, three commercial premises and parking spaces for up to 140 vehicles between 2016 and 2017, with unit sales concluding in 2021.

GST issues arose because SFQV calculated its liabilities under the margin scheme, where GST is charged on the difference between a property’s valuation and its sale price.

The company engaged PwC in mid-2016 to discuss “the GST treatment that could apply to projects involving the LDA”, obtaining advice that it could include the development services cost when calculating the margin.

SFQV’s director told the tribunal the fact that PwC agreed to be paid on a contingency basis of 20 per cent of any GST savings for all past and future sales led him to believe savings were “highly likely”.

Despite this, “SFQV did not report its taxable supply of the development services or any GST payable on the supply of development services in any of its BASs as originally lodged”.

It also determined its margin based solely on the monetary consideration for buying the land, omitting the value of development services it provided to LDA as non-monetary consideration.

An ATO GST review and audit led to the Commissioner issuing amended assessments for quarterly tax periods between 2015 and 2019, determining SFQV owed it $9 million in net GST.

The biggest discrepancy came from 2015 when it attributed $10 million in GST to the September quarter when it said SFQV received consideration for the supply of development services.

The ATO said SFQV’s margin should have accounted for both monetary and non-monetary consideration, valuing the latter at $103.1 million.

SFQV argued GST should be attributed to the September 2017 quarter because that was when the unit plan was registered, the Crown lease ended, and it became the holder of the leasehold estate in each of the units sellable for a profit.

The tribunal sided with the ATO’s view the Crown lease was a consideration, citing its economic value and connection to the development services.

The ART also found SFQV liable for “excess GST” under subdivision 10 of Division 142, which prohibits windfall gains for taxpayers who overpay GST and seek refunds despite passing it onto purchasers.

SFQV argued its underreporting of GST on development services, and overreporting on residential unit sales, resulted in an effective “netting off”, creating no excess GST but still entitled it to refunds for quarters where it overpaid.

The ART said PwC had originally said “Division 142 applies only to amounts of excess GST” but “there was no excess GST amount” for SFQV.

“It was only after the Commissioner started his GST audit on 15 April 2020 that PwC, on behalf of SFQV requested that the Commissioner exercise the discretion in s 142-15(1) and treat s 142-10 as never having applied,” Lazanas said.

Lazanas said SFQV did have excess GST in the September 2017, December 2017 and March 2018 quarters.

Additionally, it would obtain a windfall gain if the excess GST were to be refunded to it.

“SFQV was an astute property developer operating a profitable business which recovered all of its costs including amounts overpaid by it to the Commissioner as GST,” Lazanas said.

“SFQV did not discharge the burden of proving that these amounts on account of GST had not been passed on to the purchasers of the units.”

“Moreover, SFQV continued to over-state its GST liabilities to the Commissioner, even after it obtained the private ruling.”