A property developer purchases land for $200,000 (including GST) and builds a new house, selling it for $550,000 (including GST). What is the net GST liability to the ATO, assuming the developer can claim full input tax credits?

Q: What is the correct answer to: A property developer purchases land for $200,000 (including GST) and builds a new house, selling it for $550,000 (including GST). What is the net GST liability to the ATO, assuming the developer can claim full input tax credits?

The correct answer is $31,818. Option A ($31,818) correctly applies the GST calculation formula. The developer collects $50,000 GST on the $550,000 sale (calculated as $550,000 ÷ 11, since GST-inclusive prices are divided by 11 to extract the GST component). The developer can claim $18,182 in input tax credits from the $200,000 land purchase ($200,000 ÷ 11). The net GST liability is the difference: $50,000 - $18,182 = $31,818. This follows the standard GST remittance principle where businesses pay the ATO the net amount after offsetting input credits against output tax.

Q: What background knowledge is needed for this Finance Taxation question?

Under Australian GST law, registered businesses collect 10% GST on taxable supplies and can claim input tax credits for GST paid on business purchases. For GST-inclusive amounts, the GST component is calculated by dividing by 11 (not multiplying by 0.1). Property developers are typically GST-registered and must account for GST on land sales. The net GST liability equals GST collected minus input tax credits claimed. This system ensures GST is ultimately paid by the final consumer while allowing businesses to recover GST paid in the supply chain.

Q: What is a good way to remember the answer to this Finance Taxation question?

Think of GST calculation like making a sandwich: the 'filling' (net liability) is what's left after you take the bottom slice (input credits) away from the top slice (output tax). Always divide GST-inclusive amounts by 11 to find the GST 'slice', then subtract the bottom from the top to find your 'filling' - the amount owed to the ATO. When you see GST calculations, immediately identify the 'top slice' (GST collected) and 'bottom slice' (input credits) by dividing GST-inclusive amounts by 11, then subtract to find the net liability 'filling'.

Q: What exam tip applies to this Finance Taxation question?

For GST calculations, always divide GST-inclusive amounts by 11 to extract GST. Calculate output tax (GST collected) minus input tax credits (GST paid) to find net liability. Double-check by ensuring your answer is less than the total GST collected.

Q: How does this Finance Taxation concept apply in Australian real estate practice?

A property developer purchases a block of land for $220,000 (including GST) and constructs townhouses, selling them for $800,000 (including GST). The developer must calculate their BAS (Business Activity Statement) obligations, determining they owe the ATO $52,727 in net GST ($72,727 collected minus $20,000 in input credits). This calculation affects their quarterly tax payments and cash flow planning, ensuring compliance while optimizing their tax position through legitimate input credit claims.

Question

Finance TaxationGST On PropertyHARD

A property developer purchases land for $200,000 (including GST) and builds a new house, selling it for $550,000 (including GST). What is the net GST liability to the ATO, assuming the developer can claim full input tax credits?

Answer Options

A

$31,818

B

$50,000

C

$68,182

D

$18,182