GST-Construction Industry

GST treatment in Construction Industry

Contractors

• All types of construction services is subjected to GST, regardless of whether the services are for exempt properties such as residential or non-residential properties or for agricultural properties
• Example of construction services as site preparation, foundation work, scaffolding, brick laying, roofing, renovation and repair, carpentry, electrical works, paintings, plumbing, heating,etc
• Input Tax claimable because all input in the construction sector can be attributable to making taxable supply
• Value of contract includes the value of all works and materials permanently incorporated in or affixed on the site of the building or construction project

Example:

• KL Holding (Property Developer)-GST registrant, develop a piece of land into commercial project
• PJ Sdn Bhd (Main Con)-GST registrant, engaged as Main Contractor, engaged Serdang and Dengkil as sub-contractor, bill KL Holding progressively, charge GST to KL Holding
• Serdang Sdn Bhd (Sub Con)-GST registrant, bill PJ progressively, engaged as Sub Contractor for foundation work, charge GST to PJ
• Dengkil Sdn Bhd (Sub Con)-GST registrant, engaged as Sub Contractor for site preparation, bill PJ progressively, charge GST to PJ

Time of Supply

When Certificate of work done NOT required GST must be accounted on the earlier of the following:

• date of tax invoice or
• date of payment (wholly in money) received

When Certificate of work done required GST must accounted on the earlier of the following:

• when payment is received
• when tax invoice is issued
• when certificate of work done is issued (provided that no tax invoice issued within 21 days after certificate is issued)

Otherwise, the time of supply is date of tax invoice issued.

Example:

• Progress payment subject to GST
• Retention payment subject to GST (when released)
• LAD NOT subject to GST
• Rectification defect NOT subject to GST (compensation)
• Tender deposit - payment in future subject to GST
• Tender deposit - as security NOT subject to GST
• Commission subject to GST 

Property Developer

• Land is supply of goods or services (Schedule 1, Clause 20)
• Supply of goods involves transfer of (Schedule 1, Clause 2(1a-e))

1. the whole right of ownership in land
2. land under agreement for the sale of such land
3. land under an agreement which expressly stipulates that the ownership of such land will pass at some time in the future
4. any interest under Deed of Assignment or any strata title

• Supply of services (Schedule 1, Clause 2(2))

1. lease, tenancy, easement
2. license to occupy land
3. transfer of undivided share in land

• Where there is a default in payment under security relating to land, the transfer of such land shall be treated as a supply of goods (Schedule 1, Clause 2(3))
• Supply of land for agricultural, residential and general purpose - EXEMPT SUPPLY
• General purpose means burial, playground and religious purpose.

Exempt Supply-Property Developer

Sale and lease on:

• Land and building for residential purpose

1. vacant land zone or approved for "Residential" and used or to be used for residential purpose (land title)
2. any land or part thereof with any building, flat or tenement thereon, being a building, flat or tenement which is used or to be used principally for residential purpose (strata title)

• Land for agricultural purpose
• Land for general use such as for burial purpose,etc

Land and building for commercial and industrial purposes are Standard Rated (SR)

Examples of building for commercial and industrial purpose are:

• shop lots, office, retail, SoHo, SoVo, SoFo, factories, motel, inn, hostel, hotel,etc

The classification of land and building is based on USAGE

The actual use of the property, design features and the essential characteristic and attributes of the property.

In the case of newly completed property which has not been used, the sale of the property will be based on the design features and the essential characteristic and attributes of the property.

Vacant / bare land to be treated based on usage according to the title

Land-goods or service

Change in use eg. residential house converted to commercial premise-subject to the following:-

• The premise registered with the relevant authorities
• The owner apply for change of use
• Evidenced by the sales and purchase agreement

Time of Supply-Property Developer

• at the time of tax invoice is issued
• at the time of payment received
• whichever is the earlier

Sale of uncompleted non-residential property under progress payment by developers

• account for GST at the various stages of the progress / scheduled payment based on the earlier

1. a tax invoice has been issued or
2. payment is received

When should GST be accounted on the sale of a completed non residential property

• Stage 1-At the stage of signing S&P-GST should be accounted at the earlier of the following:-

1. when a tax invoice is issued or
2. when payment is received

• Stage 2-At the stage of transfer-GST should be accounted at the following:-

1. when tax invoice is issued or
2. when the balance of payment is received or
3. when the property is made available to the purchaser (when the transfer is effected-Borang 14A Pindahmilik Tanah Bahagian atau Pajakan)

The transfer or surrender of land under title to the Government or Local Authorities or any other person

• for no consideration or for a nominal value
• for the purpose of providing public amenities in compliance with the requirements imposed by the Government or the Local Authorities
• Developer need NOT account for GST for such supplies but can claim input 

Promotional Packages offer by Developer to Purchaser

1. Principal goods supplied for residential property with basic fittings as stated in Schedule G or H of Housing Development Act 1966 is EXEMPT. (Developer cannot claim input tax on such supplies)
2. Extra furnished by developer such as built in furniture, curtain, air-conditioner, refrigerator,etc is subject to GST at standard rated (SR). (Developer need to account tax on goods)
3. Car park attached to residential property (eg. apartments and condo), own by parcel owner and stated in SPA.
4. Additional car park-EXEMPT SUPPLY
5. Infrastructure like road, water / oxidation pond, etc will be handed over to local authority are subjected to GST but will be given relief from charging GST
6. Input Tax is recoverable