For a sale under the margin scheme, the ATO says all records must be kept for five years after the sale. Businesses in the building and construction industry also tell the ATO every year how much in total they paid each contractor for building and construction services.
General informationThis sheet lists what the ATO’s pages on margin scheme record keeping, valuations and the taxable payments annual report describe. It is a reading of those pages, not a record-keeping plan for any business. On subdividing, the ATO says a private ruling can settle the tax position where it is unclear.
The margin scheme file
The ATO recommends keeping these records for a sale under the margin scheme:
- the accounting records for the transaction, including the sale and purchase contracts and the settlement statements;
- evidence of the property’s original purchase price;
- records showing how the margin scheme was applied, identifying the particular property sold under it;
- records of the agreement with the buyer to use the scheme;
- where the valuation method was used, the valuations or other documents showing how the value was reached;
- the approved valuation.
For land held a long time, older evidence can matter. Where the sale or the contract came before 29 June 2005, the seller has to keep evidence that it chose the margin scheme. The ATO says that evidence is often in the sales contract, and may otherwise be correspondence, a company or trust minute, or a file note, identifying the property by a project lot number, lots on a particular estate, or land in a specified contract. It may also accept evidence held by others, such as professional advisers, valuers or financiers.
Workings for every lot and unit
A subdivision or a strata development multiplies the file. Anyone subdividing land or building strata title units on it must keep records showing how the margin was worked out for each lot or each unit. The ATO asks for records of how the starting figure was shared out: a valuation of land held at 1 July 2000, or the purchase price of land bought after that date, in each case where the land was subdivided or developed into strata units. Either figure can be shared on any fair and reasonable basis.
The income tax side has its own version of the same record. For capital gains tax, subdivided blocks keep the acquisition date of the original land, and its cost base is shared between them on a reasonable basis.
An approved valuation, in hand on time
Where the valuation method is used, the valuation is part of the record, and the ATO sets out what makes it approved. It must be undertaken by a professional valuer, give the property’s market value as at the valuation date, include a signed certificate, and be provided as a written report. For a property only partly completed at the valuation date, the value is to come in writing from a professional valuer.
The ATO says the signed certificate must specify:
- a full description of the property being valued;
- the valuation date that applies;
- the date the valuer provides the valuation;
- the property’s market value at the valuation date;
- the valuation approach and any calculation;
- the valuer’s name and qualifications.
What the written report leaves out should be readily available in the valuer’s working papers. If a property was contaminated at the valuation date, the valuer should value it in that condition. The valuation has to be in hand before the due date of the activity statement for the period in which the property is sold, or settled; where an oversight means it is late, the ATO says it may allow a short period to obtain one.
Papers from settlement
GST at settlement leaves its own trail. In the ATO’s example of a bank cheque at settlement, the seller receives an email saying a credit has been allocated to its GST property credit account, which it can view in the ATO’s online services for business, and the credit then moves to its activity statement when that is lodged. The buyer keeps the Form one confirmation details, because the lodgment and payment reference numbers are needed to lodge Form two and to pay. Sheet 04 follows that process from the seller’s side.
The yearly report of payments to contractors
The ATO’s building and construction services page says a business running primarily in the building and construction industry must lodge a taxable payments annual report if it makes payments to contractors or subcontractors for building and construction services and has an ABN. Payments to employees are not reported. Each year the business reviews whether it needs to lodge, and reports the payments by 28 August.
The ATO treats a business as primarily in building and construction services if any of these apply:
- “in the current financial year, 50% or more of your business income is earned from providing building and construction services”
- “in the current financial year, 50% or more of your business activity relates to building and construction services”
- “in the financial year immediately before the current financial year, 50% or more of your business income was earned from providing building and construction services”
One of the ATO’s examples is a property developer. ABC buys a block of land to build apartments and creates a separate entity, Upmarket Apartments, to manage the project and the construction. Upmarket Apartments must report its payments to contractors, since at least half of what it does as a business is building and construction services.
The ATO calls the definition of building and construction services broad. Its list of occupations and activities that satisfy it includes architectural work, including drafting and design, as well as surveying, project management, demolition, earthworks and the preparation of the site. Contractors can be sole traders, companies, partnerships or trusts.