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17/11/2009 -
QLD Management Rights Treansfer fee & GST |
TRANSFER FEE AND GST
Article by John Mahoney - Mahoney Lawyers
www.mahoneylawyers.com.au
For some time there has been confusion over whether or not a Body Corporate can add GST to the amount it receives by way of a transfer fee imposed when a Resident Manager sells within 2 years of becoming manager.
The Australian Tax Office has recently issued a Private Ruling which supports our stance that a Body Corporate has no right to add GST to the amount of a transfer fee.
There has not been any doubt that the Body Corporate must remit as GST 1/11 of the amount it collects. We have always maintained that a Body Corporate has no right to add GST to the transfer fee (3% if selling in year 1, 2% if selling in year 2) and that Managers would be entitled to refuse to pay GST in addition to the percentage transfer fee.
We have also maintained that Resident Managers would be entitled to claim an input tax credit on (i.e. a refund of GST) from the ATO, equivalent to 1/11th of the transfer fee.
Our view is that –
• The transfer fee is consideration paid by the Resident Manager for a taxable supply by the Body Corporate. • The transfer fee is neither GST free nor input taxed. • The “supply” by the Body Corporate is the authorisation of the Resident Manager to transfer the Agreements with the Body Corporate to a new manager. • The Body Corporate and Community Management Act 1997 and modules provide that the transfer fee is a percentage of the value of the Management Rights business. • The BCCMA does not provide for that fee to be increased by the amount of any GST. • Any GST would be deemed by the GST legislation to be included in the value of the supply – in other words, there is no automatic “grossing up” of the transfer fee to cover the amount of the GST. • Sections 9.75(1) and 177.12 of the GST Act effectively provide that the transfer fee calculated under the BCCM Act includes GST.
The latest Private Ruling from the ATO confirms our long held view that a Body Corporate does not have any right to add GST to the % payment. A party does not have the right just to add GST to a statutory payment just because the statutory payment is or is based on a GST exclusive amount. It is a little bit like a contract that expresses consideration without reference to GST - in the absence of a provision in the contract, the supplier can not just unilaterally add GST.
Any Manager who pays a transfer fee should ask for a Tax Invoice for the amount of the fee and should then claim 1/11 of the transfer fee as an input tax credit.
Some bodies corporate might argue that a Resident Manager, whose remuneration has been increased by the amount of the GST, should not complain if the transfer fee is also increased by the amount of the GST.
In our view the situations are different, as the transfer fee should be regarded as a windfall to the Body Corporate, imposed only by the BCCMA, which does not require any increase for GST. The Resident Manager’s remuneration is entirely different as it is a fee for service, usually based on market rates, and it is entirely appropriate, and is usual practice, for that remuneration to be increased by GST.
In various decisions of the Body Corporate Commissioner’s Office, that Office has refused to rule on whether a body corporate may add GST to the Transfer Fee. However, there is one decision where the Office ruled that a body corporate could. That is The Nautilus-Noosa [2004] QBCCMCmr 272 (25 May 2004) where the Adjudicator ruled that the GST component should be added on top of the transfer fee as calculated under the Module.
The latest Private Ruling confirms our view that the transfer fee includes the GST component irrespective of the Nautilus decision which was beyond the jurisdiction of the Commissioner’s Office and was made without reference to the GST legislation.
Mahoney Lawyers can assist our clients by developing strategies for dealing with the transfer fee and any associated GST should the Body Corporate seek to impose GST.
For all queries, contact John Mahoney, Partner on 07 3007 3718 or email him at: john.mahoney@mahoneylawyers.com.au
This article is not a substitute for specific legal advice. Any interested person should seek specific legal and taxation advice relevant to their own particular circumstances
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