GST on purchase an easement
Scenario:
I received a payment from Origin Energy for the option to purchase an easement on their property of $82,000(excluding GST). I am not registered for GST as my income turnover is lower than $75,000 per annum. However, as the payment is over $75,000, should I be register for GST? And declare GST on the option to the ATO? The option is a one-off payment so I would not need to be registered for GST on an ongoing basis. Also, how does the option to acquire the easement and subsequent purchase of the easement need to be allocated for tax purposes? Will these transactions be considered CGT events and what will the relevant cost base be? for example, is the cost base for the option just any legal fees? Would the cost base for the purchase of the easement be a portion of the cost base of the land?
Explanation:
No, GST should apply to the grant of the option to but the easement, as the event would appear to be on capital account (GST Act s 188-25). Thus, the $80,000 does not count towards the determination of the client’s GST turnover (GST Acts 188-20). A taxable supply would not to arise. The grant of the option to buy the easement would seem to result in the happening of CGT event D2 (ITAA 1997 S 104-40; Interpretative Decision ID2010/34). The only cost which forms part of the client’s cost would be the legal costs (ITAA 1997 s 104-40(3)). Since no part of the land is being sold as a result of the CGT event happening, so the part of the land cost base cannot be attributed to the happening of the CGT event.