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Industry Guide:

Property Developer

 
Please click here to download complete guide.

 

FREQUENTLY ASKED QUESTIONS 

Registration 

1. As a developer, I supply both commercial and residential property. Am I liable to be register? 

Supply of commercial property is a taxable supply whereas supply of residential property is an exempt supply. Taxable supplies include sale, lease and rental of commercial property. For a mixed supplier, if your supply of commercial property exceeds the threshold in the past 12 months or within the future 12 months, then you are liable to be registered.

2. If my annual turnover of taxable supplies does not exceed the threshold, can I apply to be registered?

You may apply for voluntary registration, but once registered you must remain registered for a minimum of two years. 

Please refer to Registration Guide for further details.

3. I am a developer who is doing fully residential property development. Do I need to be register?

Yes, may apply for voluntary registration. Supply of residential property is an exempt supply and you are not entitled to claim input tax incurred on your acquisitions. However, if you are registered person, you are entitle to claim input tax:-

(a)   attributable on any exempt supplies of land for general use if it is made in compliance with the requirement enforced by any public body as provided under Regulation  42 of GST Regulation 2014. 

(b)   on any supply of land to the government, local authority or any other person in compliance of the requirement by the government or local authority for the purpose of    providing public amenities and public utilities as provided under Goods and Services Tax (Relief) Order 2014. 


Place of Supply

4. If I am a developer registered in Malaysia and sell non-residential property in Malaysia, do I have to account for GST on my supplies?

Supply of non-residential property by a developer in Malaysia is subject to GST. The developer are require to charge GST on the sale and lease of such properties and account for the GST as output tax in the GST returns.

5. If I am registered in designated area (Langkawi, Labuan and Tioman) and making a supply of non-residential property in Langkawi, do I have to account for GST?

No tax will be charged if the supply of goods is made within or between the designated areas.

6. If my office is registered in the designated area and supply nonresidential property in Johor, do I have to account for GST?  

Yes, these supplies are subject to GST.

7. If a local developer in Malaysia supply non-residential property in the designated area, is the supply subject to GST?  

Yes, the supply is subject to GST. However, if the developer makes residential property in the designated area, he is making an exempt supply.


Time of Supply and Accounting Period. 

8. When and how do I account GST for supplies of uncompleted nonresidential property under progressive payment contracts?

You have to account for GST, as provided in regulation 4 of the GST Regulation 2014, at the various stages of the progressive / scheduled payment based on the time of supply which is earlier of the following:

(a) when tax invoice is issued; or

(b) when payment is received.  

Example 1

The payment is scheduled for four successive interval payment and the respective amounts to be paid are as follows:

Scheduled payment period  Amount
1 st payment (1 April 2016 )  RM 40,000.00
2 nd payment (1 July 2016)  RM 60,000.00 
3 rd payment (1 October 2016)  RM 80,000.00 
4 th payment (1 January 2017)  RM 120,000.00 

 

The developer subsequently issues a tax invoice at each successive period. The GST chargeability is as follows:

1st interval (1 April 2016)

Tax invoice                         = RM 40,000.00

GST (40,000 X 6%)           = RM 2,400.00

2nd interval (1 July 2016)

Tax invoice                         = RM 60,000.00

GST (60,000.00 X 6%)     = RM 3,600.00

3rd interval (1 October 2016)

Tax invoice                         = RM 80,000.00

GST (80,000.00 x 6%)      = RM 4,800.00

4th interval (1 January 2017)

Tax invoice                         = RM120, 000.00

GST (120,000.00 x 6%)   = RM 7,200.00


The developer accounts for GST based on the date the tax invoice is issued. Assuming he is on a monthly taxable period, then if he issues a tax invoice on 1 st April, he has to account for GST in the April GST return by 31st. May, 2016.

If he is in a quarterly taxable period his first submission of GST03 should be submitted by 31st July 2016 and the GST amount of RM2,400.
 

9. When do the developer has to account for GST on the sale of a completed non-residential property which involves lump sum payment?

The sale of a completed non-residential property is a supply of goods. The time of supply for this transaction is the date when the developer should account GST on the supply. The time of supply for the sale of the completed non-residential property is when the property is made available to the buyer or the transfer is already in effect (either by vacant possession of the property already be delivered or document of title).

However if the developer issues a tax invoice or receive payment before the property is made available to the buyer then the time of supply for this transaction is the time when the developer issues a tax invoice or receive payment. On the other hand if the developer issues a tax invoice within 21 days after the property is made available, then the time of supply is the date of the tax invoice issued.

If the developer issues a tax invoice more than 21 days after the property is made available, then the time of supply is the date the property is made available to the buyer.


Booking Fee, Tender and Contract Deposits 

10. Do I have to account for GST on receipt of payment for a booking fee?

If the booking fee forms part payment of the total consideration payable by the recipient, GST will be chargeable at the time of payment of the booking fee. On the other hand, if the deposit is used as security and will be fully refunded upon completion of services, no GST will be chargeable. 

11. Are tender and contract deposits subjected to GST?

(a) The deposit for payment of contract documents is subject to GST because it involves the supply of goods.

(b) No GST is payable, if the deposit serves as a security will be refunded.

(c) Yes, if a deposit is intended to be used to offset against the future payments (partly or fully) once the supply has been made, GST is chargeable on such a deposit.

Example 2

A property developer, DZ Sdn Bhd, calls for main contractors to tender for a large scale project in Puchong. Interested tenderers have to purchase the tender documents containing details of the project (e.g., plans, specifications, schedule of quantities) for a fee of RM250. This fee is non-refundable and is subject to GST as it is a sale of tender documents. GST is chargeable and GST has to be accounted at the earlier of when payment is received or tax invoice is issued. DZ Sdn Bhd then awards the building contract to main contractor, MS Sdn Bhd.MS Sdn Bhd is required to submit a security deposit in the form of a banker’s guarantee of 5% of the contract sum for nonperformance. This deposit will be refunded upon the completion of the contract. This security deposit is received by the developer is not subject to GST as there is no supply made. Since this is a large-scale project, DZ Sdn Bhd be asked to give MS Sdn Bhd an advance payment (akin to a deposit) which will be used to offset against future progress payments. GST should be charged on this advance payment. GST has to be accounted by MS Sdn Bhd at the earlier of payment received or tax invoice is issued.


Tax Invoice 

12. In the case of JV, can a developer issue a tax invoice on behalf of Landlord to the purchaser?

Yes if you are a registered person and the transaction involves the residential property, you can issue the invoice to the buyer. The developer cannot issue the tax invoice to the purchaser on the sale of non-residential property if the land owner is not a registered person.

13. Currently when I sell the commercial property to the purchaser, I issue the invoice to the finance institution .Is the same practice applicable for such sale which effect from 1st April 2015?

No, because if the invoice issued on the Bank’s name, the purchaser cannot claim the ITC. Therefore, the tax invoice must issue on the purchaser’s name. A registered person claiming input tax must hold a valid document (tax invoice) under his name which is required to be provided under section 33 GSTA (Goods and Service Tax Act 2014) (refer section 33 GSTA and reg.38(1)(a)(i) GSTR).  


Supplies

14. In the case of land and property, what are the supplies subject to GST?

All supplies involving the sale and lease of non-residential property is subject to GST. The developer who are registered under section 20 of GST ACT 2014 are liable to charge GST on such supply and account for GST as output in the GST return.

Example 3 


DEF Developer Sdn Bhd carries out a mixed development project incorporating 200 units of residential houses, 20 units of commercial building and 10 units of industrial building. The sale of the 20 commercial and 10 industrial units are subject to GST. The sale of the 200 residential houses is exempt from GST.
 

15. In the course of undertaking a property development project, I have to surrender part of my land / property back to the State Authority for no monetary considerations to be used for educational, religious, charitable or public purpose. These supplies include roads, police station, schools, recreational areas and other public amenities. Are these supplies subject to GST?  

There are two types of supplies here:

(a)  Supply of land for the purpose of playground or religious building. Item 1 of the GST Supply (Exempt) Order 2014 states that supply of land for general use is exempt  supply. Regulation 42 of the GST define “general use” means the use of land for the purpose of burial ground, playground and religious building. In the case of land for  general use be supplied by the taxable person to the Federal Government, State Government, local authority and statutory body, such regulation allows  any input tax attributable to such supply be treated as input tax attributable to taxable supply if such supply be made in compliance with the requirement enforced by any Federal Government, State Government, local authority and statutory body.

(b)  Supply of land for the purpose of roads, police station, schools and other public amenities. Such supply is a taxable supply and basically, GST is chargeable. However  since this supply is to the state authority which is in compliance of the requirement by the state authority for the purpose of providing public amenities and public utilities,  then such taxable person are relieved from charging GST to the state authority. This is stated under item 2 in the Second Schedule of the GST Relief Order 2014.Such  taxable person are allows to claim ITC under section 39(1)(a) of the GST Act 2014. 

16. I provide administrative services such as provide endorsement of deed of assignment. Are such administrative fees subject to GST?

Yes, administrative fees incurred such as endorsing the deed of assignment are subject to GST because administrative services are standard rated supplies.

17. I charge interest for late payment. Is this interest payment subject to GST?   

Interest payment related to late payment is regarded as a penalty and is not a supply. Therefore, it is not subject to GST.

18. Merah Developer sells only 180 units of residential condominium. In the contract, it will supply two free car park, with an option to sell the extra car park @ RM18,000 each. Is this to be treated as a composite supply? How do I treat the input tax in respect of the car park?  

Item 1 of the GST (Exempt) Order states that any supply of land used for residential purposes is an exempt supply. Under sub item (1)(b)states that supply of residential property will includes any supply of parking facilities which is ancillary to the supply of residential building. Hence, the sale of extra car park at RM18,000 each to the owner of the residential property is an exempt supply. Therefore input tax incurred in the construction of the car park cannot be claimed.

19. If Merah Developer sells 500 units of non-residential properties include of shop lots and office building. In the contract, it will supply two free car park, with an option to sell the extra car park @ RM25,000 each. Is this to be treated as a composite supply? How do I treat the input tax in respect of the car park?  

The supply of non-residential properties are standard rated supply. The sale of extra car park at RM25,000 each to the owner is also standard rated supply. Therefore input tax incurred in the construction of the car park is claimable.

20. If Merah Developer sells the building with mixed development includes 500 units of residential condominium and 200 units of shop lots. In the contract, it will supply two free car park, with an option to sell the extra car park @ RM20,000 each. Is this to be treated as a composite supply? How do I treat the input tax in respect of the car park.

The supply of residential condominium is an exempt supply and supply of shop lot is standard rated supply. The sale of extra car park at RM20,000 each to the owner of shop lot is also standard rated supply. But the sale of the extra car park at RM20,000 each to the owner of residential condominium is an exempt supply. Therefore input tax incurred in the construction of the car park, Merah Developer should do the apportionment.

21. XYZ Developer sells only 200 units of residential condominium. In the contract, it will supply four units air-conditioner, one new refrigerator and free club membership. Is this to be treated as a composite supply? How do I treat the input tax in respect of the following:  

(a) air-conditioner and refrigerator; and

(b) free club membership? 

The supply of residential condominium is an exempt supply. Based on the above scenario, the supply of the air-conditioner and refrigerator are standard rated supplies and subjected to GST because these are not basic fittings as stipulated in Schedule H and /or G of the Housing Development (Control and Licensing) Act 1966. Treatment for input tax are as follows:-

 (a) If XYZ Developer supply the goods without consideration to the buyer, XYZ Developer has to account for GST on the supply of the goods. Therefore input tax incurred in making the supply is claimable.

 (b) Free club membership is a supply of service. However in this instance the supply of service is given free and therefore it is not a supply. Furthermore input tax on club membership cannot be claimed because it is a blocked input.


Input Tax Credit 

22. Is the input tax incurred for the entire property development incorporating residential, commercial and industrial units recoverable? 

No, only the input tax on goods and services which are used or will be used wholly in making taxable supplies is recoverable. You should identify the inputs that are directly attributable in making taxable supplies and claim that portion. In this case, only the input tax incurred on inputs used wholly in making commercial and industrial buildings (commercial) is recoverable. Input tax used for making exempt supply is not claimable. Input tax used for making both taxable and exempt supplies should be apportioned.

Example 4

DEC Developer Sdn Bhd carries out a development project consisting of 1,000 units of residential houses and 200 units of high rise commercial lots. The developer identified the lifts to be used in commercial building. The input tax incurred on the purchase of lifts can be fully recovered. Input tax incurred on professional services acquired for making both residential and commercial building is required to be apportioned accordingly. (Please refer to Guides on Partial Exemption for further information).

However, under the Regulation 42 of GST Regulations 2014, input tax that is attributable to exempt supply of land for general use may also be treated as being attributable to taxable supplies. The terms of general use means that the usage of the land is for the purpose of burial ground, play ground or religious building. The input tax incurred on these supplies is treated as attributable to taxable supply and it is claimable. However such supply of land for general use must be made by a taxable person to the federal or state government, local authority or statutory body.

On the other hand, supply of road, drainage, oxidation pond and others public amenities are taxable supply .In the case where such taxable supplies be supplied to the government, local authority or any other person in compliance of the requirement by the government, the GST Act allows input tax on such supplies be claimed by the developer who is the register under GST Act even though item 2 of the second schedule of the GST (Relief) Order 2014 relieved the developer is given relief from charging the output tax to the government local authority or any other person.

23. Can I claim input tax incurred on the upgrading works such as to widen the road and other public amenities that’s belong to the government?

The upgrading work done is a supply of services and subject to GST. You are required to charged and account for GST. Indeed, the services is supply to the government but such services is not given any relief in the GST (Relief) Order 2014. Therefore, the input tax incurred is claimable and you are required to charge GST on such supplies.

24. Residual input tax is input tax for making both exempt and taxable supply. How do I apportion the claim of the residual input tax?

Residual input tax relates or incurred to both taxable and exempt supplies. It should be apportioned to determine the portion of input tax that is recoverable. For example, the rental, utilities bill of the developer office, machines etc. that attributes to the development of the residential and commercial buildings may be apportioned for the input tax incurred. To apportion it the partial exemption rules applies.

Example 5 

DEF Developer Sdn Bhd carries out a development project consisting of 200 units of residential houses, 20 units of commercial building and 10 units of industrial building. (These units are regarded as the main development). For the relevant taxable period, the value of the residential houses is RM5,000,000 and the value of the commercial and industrial buildings is RM3,000,000. In the course of carrying out this project, the developer also supply basic amenities such as roads, footpaths, drains and communal parking. The residual input tax incurred in supplying these residual inputs is RM40,000 in that taxable period. The residual input tax recoverable in that taxable period (using the turnover method) is as follows:

Value of Supplies  Amount 
Total value of taxable supplies RM3,000,000.00
Total value of exempt supplies  RM5,000,000.00 
Residual input tax incurred  RM 40,000.00 

Input tax recoverable:

= Residual Input Tax X Total Value of Taxable Supplies / Total Supplies

= RM40,000.00 X RM 3,000,000.00 / RM 8,000,000.00

= RM15,000.00

Input tax recoverable is RM 15,000.00

Please refer to Guides on Partial Exemption for further information.  
 

25. ABC Developer sells residential properties only. It contracted to sell a condominium to Ms. Lela. The cost incurred by the developer for the condominium is as follows:

Description  RM Type of supply 
The condominium unit  460,000  Exempt 
Renovation to extent kitchen 40,000  Standard
Italian sofa set 25,000  Standard
Refrigerator 7,500  Standard
Curtain set 12,500  Standard
Legal fee (free)  5,000  Standard
Total  550,000   

From the scenario given, there are three different supply. ABC Developer is supplying residential property which is exempted from GST. The developer cannot charge GST to the buyer. Therefore ABC cannot claim all the input tax incurred in making the exempt supply. However, if he fulfil the condition in regulation 42, the input tax incurred on the supplies such as road, playground, sewerage etc that will be handed over to the government may be recovered. This is because such supplies attribute to taxable supply.

At the same time the developer also supply renovation services, sofa, refrigerator and curtain. This is a separate supply from ABC to the buyer. These supply is a taxable supply. Such input tax is claimable. Here, the developer is considered as a mix supplier.

The third supply is the supply of services by the legal practitioner to the developer. However, the legal fee incurred is a supply made by the legal practitioner to the developer. He may charge GST to the developer and it becomes an input tax to the developer. If such supply is incurred on the sale of the residential property of which is an exempt supply, the input tax on such acquisition is not claimable.

26. Can I claim input tax on speculative supplies such as consultant / professional fees, finders fees and feasibility studies, which are incurred in the course of investigating potential projects? 

Speculative supplies such as consultant / professional fees, finders fees, feasibility studies are inputs to business. If the taxable person is making wholly taxable supplies, he can claim all the input tax incurred. On the other hand if he is a mixed supplier, he should apportion the input tax claim.

Example 6 

RZM Development Sdn Bhd is intend to develop a piece of land into the residential property. A valuer be engaged to perform value the land and to perform a legal and ground site investigation. Based on the report prepared by the Valuer, RZM bought the land and start the development project. Later in the middle of the development, he may make changes for the change in used of in used of the development from residential property to commercial property. Then the he may incurred cost and the input tax is claimable.

27. If a residential building build along the main road, and is converted into non-residential use (showroom), is it possible for me to claim the input tax?

Residential building is exempted from GST. However, if the residential building owner converts the residential building to commercial use (showroom), then the building will be subjected to GST and the input tax claim is allowed. Any supply of the building after conversion is subjected to GST. 

28. Maju Developer develop a building consisting of 40 units shop-houses (ground floor) and residential apartments (1st, 2nd & 3rd floor). Apart from apportionment of input tax based on the selling price, what other methods of apportionment is acceptable to Customs?

The supply of shop houses is a taxable supply and supply of residential apartments is an exempt supply. The standard method for apportionment is based on the turnover method. Under the turnover method, the residual input tax is multiplied with a taxable portion. The taxable portion is derived from the value of taxable supplies divided with the value of total supplies made in the taxable period.

Besides the standard method, other alternative methods such as floor space, input cost, transactions, output quantities and man hours may be used. However, the developer must get prior approval from the Director General of Customs to use the alternative method of apportionment before using it. The Director General of Customs may approved the application if the alternative method is found to be more fair and equitable. The developer shall start using the alternative method beginning from the date specified in the approval letter from the Director General. 

Please refer to the GST Guide on Partial Exemption for further details about the apportionment rules. 


Gift Rules

29. What is the GST treatment on gift given free by the property developer to the purchaser?

 Paragraph 5(2)(a) of the First Schedule of GSTA 2014 provides that GST is not chargeable on gift made in the course or furtherance of business to the same person in the same year where the total cost of the gift to the donor does not exceed RM500. However if the total cost to the donor is more than RM500, GST need to be accounted for and input tax is claimable.

In the case where the Gift was bought by a taxable person from a non-GST registered person worth more than RM500 and given as a gift without consideration, no input tax is claimable as the gift is acquired without tax. Determination of RM500 per person per year is the aggregate of all gifts given in such the tax year. If the total cost exceeds RM500, it is subjected to GST (account for output tax).

Example 7 


Mr. Abu purchase 2 units of commercial properties from RZM Development Sdn. Bhd. RZM Development Sdn Bhd agreed to give a laptop worth RM3,000 to Mr. Abu as a gift. Such supply of laptop is subject to GST because its value is more than RM500 (gift rule) and input tax incurred on the purchase of laptop is claimable.

However, no GST is chargeable on gift if such gift is given to the same year in the course of furtherance of the business if the total cost of the gift does not exceed RM500.

 

Damages and Out of Court Settlement

30. What is the GST treatment for damages and out of court settlements?

Damages and Out of court settlements which are paid for the breach of warranty or delays in completion of contract, are compensatory in nature. Hence such settlement cannot be treated as taxable supply and GST need not be charged for such recovery. However GST is chargeable for settlements; payments made for taxable supplies. 

31. Are liquidated damages such as delay in completion of work subject to GST?

No, liquidated damages due to delay in completion of the construction project is not subjected to GST.

Example 8

The main contractor, ABC Construction Sdn. Bhd, did not complete the building project by the stipulated completion date stated in its contract with its developer, XYZ Development Sdn Bhd. It is required to pay liquidated damages to the XYZ Development Sdn Bhd at a rate of RM3,000 per calendar day (including Sundays and public holidays) for every day where the completion of the project is delayed. Such liquidated damages are not subjected to GST as it is compensatory in nature. 


Rectification of defect

“Rectification of Defect” is one of the provisions in the construction contract. It is allowed even after the issuance of Certificate of Compliance and Completeness (CCC) and the purchasers will take possession of the properties, if there’s defects in the new units that needs rectification. Such contract stipulates that the main contractor is required to carry out such rectification works during the defect liability period. Hence, such rectification of defect are compensatory in nature, and cannot be treated as taxable supplies.

32. Under the contract, the main contractor is required to carry out rectification works during the defect liability period. However, since the main contractor did not want to rectify this defect, another contractor is hired by developer to rectify the poor workmanship done by the main contractor and as a result additional cost is incurred. What is the GST treatment on this?

(a) Generally, if the main contractor does not perform the rectification works, the developer may engage another contractor to do the job and subsequently deduct such costs from any payment due to the main contractor.

Scenario 1
 


If the developer ("D") hires another sub-contractor ("SC") to do the rectification, the sub-contractor ("SC") is supplying his construction service to ("D"). If the sub-contractor ("SC") is registered for GST, he has to charge ("D") GST on the rectification works performed. ("D") then onward supply this construction services to the main contractor ("MC"). (“D”) have to charge “MC” GST on the said works.

(b) At times, the purchaser may engage his own contractor to do the rectification and claim compensation for the costs or deduct the amount from any payment due to the developer. The developer in turn deduct such amount from any payment due to the main contractor. In either situation, the developer are making a supply of rectification works to the main contractor. The developer have to charge and account for GST on the amount he claimed or deducted from the main contractor.

Scenario 2

If the purchaser ("P") hires his own sub-contractor ("SC") to rectify the defects, there is a supply from the purchaser ("P") to developer (“D”) because the purchaser ("P") is making good the defects that should have been done by ("D"). If the purchaser ("P") is registered for GST, he has to charge ("D") GST on the cost of the rectification works carried out by his subcontractor ("SC"). ("D") will in turn onward supply this construction service to the main contractor ("MC") and charge him GST accordingly.

The developer can recover the amount for rectification of defect in 2 ways:

(a) Deduct the cost of rectification work from the retention sum. Such supplies will be treated as two separate supplies. One supply is from the main contractor for completing the entire job (though not entirely to the developer’s satisfaction) on the full value of the contract (including the retention sum).

Another supply is from the developer to the main contractor for the full value of the rectification works because the developer repair the defects that should have been done by the main contractor.

(b) Claim payment from the main contractor.

 The developer may go to court to seek payment from the main contractor for the rectification cost, or this may be agreed by an out-ofcourt settlement. Such payment is subject to GST as it is in relation to taxable supplies made from the developer to the main contractor for repairing the defects which should have been rectified by the main   contractor. The main contractor should still charge GST the developer on the full value of its supply, and the developer should charge GST the main contractor for the rectification works, similar to (a).  

33. What is the GST treatment if the compensation only relates to the poor work done and does not involves any rectification works?

If no rectification work is to be carried out and the developer is only claiming compensation from the main contractor for the poor work done, such compensation is not subjected to GST as there is no supply made. The main contractor will still have to bill the developer for the full value of the contract including the retention sum.


Transitional Issues 

34. Are contracts signed before the GST implementation date liable for GST?

First of all look into the details of the contract. If the contract is about supplying an exempt supply, then it is not subjected to GST. On the other hand if the supply is a taxable supply, then the supply made on or after the implementation date is subjected to GST even though the contract is signed before the implementation date.

35. Are contracts signed which span the transitional period (pre and post GST implementation date) liable for GST?

Commercial property made available before GST implementation is not subjected to GST. However if the property is made available on or after GST implementation date, the supply of the property will be subjected to GST. This applies for completed constructed property or existing property. The phrase “made available” means that vacant possession of such property have been delivered by the developer.

On the other hand, if the property is still under construction and there is a contract for a period or progressively over a period before and after the implementation date, GST is applicable only on the portion of the property under construction from 1st April 2015.

36. I have sold a shop lot worth RM1 million. I have made the full payment and S&P signed before 1st April 2015 but the key is handed over on the 5 th April 2015? Is the property subjected to GST?  

Supply of land or property made:

(a) under agreement for a period or progressively over a period, whether or not at regular intervals and that period begins before the effective date and ends on or after the effective date the proportion of the supply which is attributed to the part of the period on or after the effective date shall be chargeable to tax (refer Section 188, GST Act 2014);

Example 9  



Example 10




Example 11




(b) under agreement but not for a period or progressively over a period or not under agreement, where any payment received or invoice issued before effective date and the supply is on or after effective date, GST is chargeable as if the payment or invoice is received or issued on the effective date (s.183 GSTA).




Hence, such land is treated to be supplied if vacant possession be delivered before 1st of April 2015 regardless whether such supply is under section 183 or 188 of the Act.

37. What are the consequences if I do not make a provision to include the element of GST in my contract?  

Failure to include the GST provision may make the developer unable to recover GST from the client because the price stated in the contract is deemed to be the consideration paid to the developer. Consideration is value of property including GST.

38. How do I calculate GST on value of building if the building was constructed during the time spanning GST implementation?

You must apportion the value of building pre and post GST. GST is only chargeable for the part of the building constructed after GST implementation. This value will include the value of all works incorporated into the building pre GST and post GST. A recognized person such as engineer and architect can verify the value of that part of building through the issuance of an interim certificate. This certificate issued by a recognized person under any written law may include any certificate issued by Construction Industry Payment and Adjudication Act (CIPAA) or Uniform Building By-Laws 1984 (UBBL) (written law in Malaysia).

Example 12

KL Contractor signs a contract with JK Developer to build a RM1,000,000 commercial building. The contract is scheduled to begin on 16 April 2014 and completed by 30 April 2015. Under the contract of agreement, KL Contractor will receive an amount as provided under the progress payment schedule. KL Contractor will invoice JK Developer on 15th of each month. By 1st. of April 2015 KL Contractor has received RM800,000 from JK Developer on the construction services done and on 15 April 2015, KL Contractor lodges a claim amounting to RM 200,000.00 for the remaining value. How much should KL Contractor account for GST if the valuation on 1 April 2015 is RM900,000?

If the valuation is at RM900,000 then the remaining RM100,000 is subjected to GST. Therefore KL Contractor has only to account (RM100,000 x 6/106) RM5,660.38 to customs if he is GST registered.

39. Do I have to account for GST on non-residential property completed before implementation of GST but sold after the GST implementation?

Non-residential property completed before GST implementation but sold only after GST implementation period will be subjected to GST. Completed commercial property refers to property issued with a Certificate of Completion and Compliance (CCC).

40. Developer A commenced its project construction on 1 January 2012 and is expected to be completed on 31 July 2015. All the products, consisting of retail lots and serviced apartment, are sold in the year 2012 and scheduled for progress billings up to July 2015. Some of the products are sold with interior design complete with finishing. Whether the progress billings and contractors’ claim after 1 April 2015 are subjected to GST? Does the billings on interior design complete with finishing after 1 April 2015 subjected to GST too?

The portion of goods (retail lots and serviced apartment) that have been supplied before the GST implementation date are not subjected to GST. The portion that is to be supplied after GST implementation will be subjected to GST. Progress billing for the portion of goods to be supplied after GST implementation shall include GST. The portion of construction services supplied after GST implementation date will be subjected to GST. Similarly, the portion of interior design complete with finishing supplied after GST implementation date will be subjected to GST.

41. On 1 July 1992, land owner RZM Sdn Bhd have entered into agreement into leasing agreement under section 222 of NLC where MS Sdn Bhd be given the right to occupy the land for 65 years will and end on 30 June 2057. The whole agreed payment be paid to RZM Sdn Bhd upon signing such agreement and submitting form 15A of NLC to the land office. Whether such payment received by subjected to GST?

Any supply of leasing services is supply of services and subject to GST if such supply is relates to commercial land or property. Basically, GST treatment for spanning period is based either on:-

(a) contract has no provision for general review opportunity to change /renegotiate the consideration for such supply of leasing services(section 187 GST).
 
      The provision of such leasing services under a reviewable contract entered into no less than two years before 1 April 2015 can only be zero-rated until its first    opportunity after that date for review or for a period of five years after 1 April 2015, whichever is the earlier.  

      However this section is only applicable if: 

      (i) the supplier and recipient of the supply are registered persons;

     (ii) the supply is a taxable supply; and

     (iii) the recipient is making wholly taxable supply




 Hence, If the parties have an opportunity to review the contract, the supply of leasing services will be subject to GST when the first review opportunity arises and in the case where no review opportunity arises, such supply will subject to GST after the expiry of the five year period from 1 April 2015 .

       Or

(b) Application of section 188 of the Act

     Supply of leasing services for a term of 65 years by RZM Sdn Bhd to MS Sdn Bhd is a continuous supply of leasing services spanning the GST commencement. Section 188 of the Act allows only the portion of supply made before 1 April 2015 is not subject to GST. The proportion of supply made on or after 1 April 2015 is subject to GST. The supply is taken to be made on a continuous and uniform basis throughout the period. In this case, RZM Sdn Bhd as a taxable person makes a continuous supply of services spanning 1 April 2015, then RZM Sdn Bhd have to apportion the supply and account for GST accordingly.


Other Issues 

42. What is vacant possession?

Giving 'vacant possession' refers to a legal obligation to ensure that a property is in a state fit to be occupied at a given point in time. Vacant possession is an essential element of any land transaction which includes the right to occupy the property, and the obligation will normally appear as an express term in the land agreement. It means that at the moment that 'vacant possession' is required to be given, the property is empty of people and that the purchaser is able to assume and enjoy immediate and exclusive possession, occupation and control of it. It must also be empty of chattels, although the obligation in this respect is likely only breached if any chattels left in the property substantially prevent or interfere with the enjoyment of the right of possession of a substantial part of the property.

The obligation to give VP has been breached if:

 (a) Where people are in lawful possession of the property under a lease or licence. For vacant possession to be given, there must not be anyone else with a right to  possession of the property. This means that vacant possession will not be given if anyone has lease or an occupational licence in respect of the property even if they are  not in fact in possession of it

 (b) Where squatters were in unlawful occupation of the property (Cumberland Consolidated Holding Ltd v Ireland [1946], obiter dicta).

 (c) Where something is left in the property that substantially interferes with the physical enjoyment of the property but which may be removed e.g. large quantities of rubbish  left inside the property (Cumberland Consolidated Holding Ltd v Ireland [1946]) or a large number of chattels such as furniture and personal goods (Scotland v Solomon  [2002]) or indeed people carrying out repair works required to comply with lease obligations (NYL Logistics (UK) Ltd v Ibrend Estates BV [2011]).

 (d) Where something exists that is a legal obstacle to the enjoyment of the property, such as on order to requisition the property (Cook v Taylor [1942]).

Hence, for the purpose of GST, the vacant possession of the property be deemed as be delivered if:

 (i) Building is completed and CCC be issued by the Authorised person where vacant possession means completion of the individual units up to the stage of "electrical cabling is ready for connection to the Property.

 (ii) The key of the building and a notice for such delivery of vacant possession be issued to the purchaser. Upon that the purchaser take such delivery; and

 (iii) Full payment for such supply of goods be made to the developer. Hence, failure to made full payment means no vacant possession of such property delivered and such developer only give right to occupy the property only. 

43. Is the capital contribution fee subject to GST? 

Capital contribution fee is payment required to be made by the developers to the utility providers for the provision of water, sewerage, electricity and telecommunication services. Developers are mandatorily required to supply such facilities to ensure such services are made available to all project. The developers who runs the project are required to pay capital contribution charges for infrastructure works such as trunking, cabling, etc. It is a voluntary basis to provide such facilities. 

The GST treatment on the capital contribution fee is a standard rated supply. This is due to the supply made by the service provider to the developer. For example, in the case of “Tenaga Nasional Berhad (TNB)”, the amount of contribution fee paid due to the charges for the planting of the cable in order to supply the electricity to the development area. TNB are required to issue a tax invoice and charge GST to the developer. The time of supply is when the services is performed or payment received or tax invoice is issued, whichever is the earlier.

44. A property developer wants to change the land title from agriculture to commercial. He needs to pay the conversion premium which is imposed by the State Authority. Is the conversion premium imposed subject to GST?

No, the conversion premium imposed by the State Authority is not subject to GST.

45. What is GST treatment on long lease or subleasing of the Property?

Sections 221 to 223 of NLC allows the land owner to grant the right to lease the property for the maximum term up to 99 years if it relates to the whole of any alienated land and 30 years if it is relates to a part of alienated land only. A leasehold property is an ownership of a temporary right to hold land in which a lessee or a tenant holds rights of land by some form of title from a lessor or landlord. Although a tenant does hold rights to real property, a leasehold property is typically considered personal property. Until the end of the lease period the leaseholder has the right to remain in occupation as an assured tenant paying an agreed rent to the owner. It is a contract of leasing between a land owner and a tenant. For sub leasing of the property, NLC allows such right be granted for a term exceeding 3 years.

For the purpose of GST, any supply of leasing services is supply of services and subject to GST if such supply is relates to commercial land or property. Hence, GST is chargeable on any supply of leasing services made after 1st April 2015.

46. I get a project to build a mosque on the “wakaf land” and give it to the Majlis Agama Islam Negeri. What is GST treatment on such developing services? Does it subject to GST? 

There are 2 supplies involve:-

 (a) Supply of “wakaf land” which is use as commercial property to the Majlis Agama Islam Negeri is a taxable supply. GST have to be account by the taxable person who surrendered such land to Majlis Agama Islam. On the application made by the taxable person, section 56 (3) of the GST Act allows the Minister subject to such condition relief Majlis Agama Islam from payment of the whole or part of GST charged or relieve the taxable person from charging and collecting GST on such supply of “wakaf land”.

 (b) Supply of mosque on the “wakaf land” is treated as a supply of land for the purposes of general use and falls under GST (Exempt) Order. Developer cannot imposed any GST on such supply. However, regulation 42 of The GST Regulation 2014 allows any input tax attribute to such supply to be treated as taxable supply and such taxable person be allowed to claim for ITC if such supplied be made to any public body and such supply of goods by the taxable person is made in compliance with the requirement enforced by any taxable person.  

47. What is the GST treatment on the amalgamation of land?

Amalgamation of land is the process of combining two or more adjoining pieces of alienated land. Originally the lands are held under separate document of titles, after the land are combined, they will be held under a single land title with all proprietors appearing in the title together with their shareholding. The other titles ceases to function. For the purposes, Application to amalgamate the land is not a supply and not subject to GST.

48. Do I have to account for GST if my project is abandoned?   

During the period the project is abandoned, you may not be making a taxable supply and therefore you do not have to account for GST. However, if you received any payment or issued any tax invoice during this period, you have to account for it. If you had issued a tax invoice and accounted for it but did not receive payment within 6 months, you can recover GST as bad debt relief.

49. I make payment to my contractor to compensate him for losses due to temporary suspension of work. Is the payment paid for temporary suspension of work subject to GST?

Any payment to the contractor due to the temporary suspension of work is not subject to GST. Such payment is a compensatory in nature and not a supply.

50. I supply materials and utilities and loan workers to contractors for use in my project. Can I contra the value of the materials, utilities and workers with the value of the construction services?

No. These are regarded as two different supplies. You have to charge GST for the full value of the materials, utilities and workers services supplied to the contractor. Similarly the contractor have to charge you GST on the full value of the construction services.

51. Due to the poor sales, Tinggi Developer is unable to manage in selling off the 20 units of shop houses. Out of that they decided to keep 10 units of shop-houses as its fixed asset/investment properties for rental income. How does Tinggi Developer treat the input tax claimed earlier on the changes made? Is converting an inventory to investment property be interpreted as taken for own use and considered as a deemed supply?   

Input tax claimed earlier in respect of intending to make taxable supplies of selling (expected sales) commercial units need not be adjusted because the proportion claimed does not change as rental of commercial units entitles the developer to claim the same proportion of tax. Both are making taxable supplies.

Converting an inventory to investment property per se is not a supply. Renting out the property is a taxable supply. Using the property for business use without the consideration is not supply but input tax can be claimed because the property is used for purpose of business. However, if the property is used by a developer who makes mixed supply, the developer will have to pay back the input tax earlier claimed by making adjustments. Using the property for private use is considered as a deemed supply and the developer will have to account for output tax.

52. Developers for high rise residential building usually have the following types of billings. What is the GST treatment for the following billing item?  

No. Billing Item
1.  Forfeiture sum
2. Area variance 
3. Extra package billing
4. Car park billing 
5. Administration fee 
6. Contra adjustment (debit) 
7. Reversal – discount allowed
8. TNB deposit 
9. JBA deposit 
10. Quit rent 
11. Assessment 

The GST treatments for the above billing item are as follows:

(a) The forfeiture sum is the money received due to the breach of contract. Therefore, if the money received as a deposit for the purpose of security and the money does not form as part of consideration, it is not subject to GST. If such money is forfeited, there has no GST implication.

(b) Area variance, extra package billing and administration fee is subject to GST at standard rate.

(c) Generally, contra adjustment is not applicable in GST. There should be two separate supplies where the supplier issues and charges GST to the customer. If the customer is a registered person, he is allowed to claim the input tax. Accounting for GST based on the difference (contra) is not allowed.

(d) The value for GST purpose of reversal or discount allowed will be reduced by the value of the discount given. 

(e) Deposit for supplies of water and electricity is not subject to GST if the money received is a deposit for purpose of security and does not form as part of consideration.

(f) Quit rent and assessment are out of scope supply. 

53. What is the GST treatment on the service apartment and the shop houses which will be used as partially commercial and partially residential?

Generally, treatment of land to be based on the usage. Serviced apartment is treated as residential property. Therefore it is exempted from GST. Shop houses will be treated as partially commercial and partially residential if one floor is used for commercial and the other floor is for residential. You are required to do apportionment between the commercial and the residential usage. The commercial usage is subject to GST while the residential will be exempted from GST. 

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