Valuation Methodology Exam 2

Question 1

What are 3 Methods of applying GST?

Answer 1

Going Concern
Margin Scheme
Taxable Supply Approach

Question 2

Explain the Going Concern Method?

Answer 2

Where a supply is made of a business or enterprise and all things necessary to continue that business or enterprise are provided to the buyer by the vendor. Subject to other criteria this will result in a GST free supply. i.e. No GST is payable

Buildings sold as investments can apply to be treated as a going concern

Vacant buildings can also qualify if tenants have vacated, the building is being advertised for lease

Question 3

Explain the Margin Scheme?

Answer 3

The vendor is required to collect the GST and remit it to the ATO
Purchases cannot claim the GST as a Tax credit under the margin scheme
After 2018, the purchases of new residential properties are required to withhold the GST amount and remit to the ATO

Question 4

How much is kept under the Margin Scheme?

Answer 4

Either;

1/11th of Contract Price or

the parties agreed the margin scheme applies and therefore 7% of the contract price

Question 5

What is the Taxable Supply Approach?

Answer 5

The supply of land will be treated the same as the supply of goods, where GST will be paid at the rate of 10%

Question 6

What is Face Rent?

Answer 6

Quoted rental rate before incentives, commonly the advertised rent

Question 7

What is an Incentive? Examples?

Answer 7

Incentive rent is the rent including benefits such as rent-free periods and car parking spaces

Question 8

What is Market Rent? How do you calculate?

Answer 8

Market rent is the rental amount expected for a property

It is calculated by taking Face Rent and deducting Incentives

Question 9

What is the Hypothetical Development Approach (static)?

Answer 9

A top-down approach that reduces the development back from a conceptual completion and realisation (sale) to the residual underlying (land) value.

Includes a Profit and Risk Factor (P&R)

Question 10

What are the Steps in an HDA?

Answer 10

Step 1 - Establish Gross Realisation
Step 2 - Deduct Agents Commission, Selling Costs, and GST
Step 3 - Cal Net Real. (deduct Step 2 from 1)
Step 4 - Subtract P&R
Step 5 - Cal Dev Costs
Step 6 - Cal Interest on Dev Costs, factor in development and selling periods
Step 7 - Deduct Dev Costs and Interest from Step 4
Step 8 - Cal Interest on Land, Acquisition costs (Stamp Duty and legal)
Step 9 - Deduct legal fees and other development costs
Step 10 - Deduct Stamp Duty