A GST-registered developer buys land for $200,000 including GST and builds a new house, which it sells for $550,000 including GST. Ignoring construction costs and assuming full input tax credits on the land, what is the net GST payable to the ATO?
Correct Answer
A) $31,818
GST collected on the sale is $550,000 divided by 11, or $50,000. The input tax credit on the land is $200,000 divided by 11, or $18,182. Net GST payable is $50,000 minus $18,182, which is $31,818. In practice the developer would also claim credits on construction costs, which the question sets aside.
Why This Is the Correct Answer
GST on the sale is $550,000 divided by 11, which is $50,000. The input tax credit on the land is $200,000 divided by 11, which is $18,182. The net amount payable is $50,000 minus $18,182, or $31,818.
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