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Building allowance a rort?

By Slumlord - 22 January 2012 28

Hoping someone with a better understanding of tax and/or consumer law can give a view here.  Am in the process of building.  Our builder, a large business with good buying power, gives us an allowance of $30 per m2 for tiles to be selected from only 2 shops.  At those shops I’m told that if we’re building through builder X our quoted price is the full list price of the tile, but, as I did yesterday, if I tell them i’m buying privately i can get a much better price – for what it’s worth i was quoted $28m2 yesterday.

Now, the tile shop openly told me that while I am ‘charged’ the list price, our builder pays them a much lower price because of their buying power, and the tile shop invoices me directly for any cost above the set allowance.  Basically they collude to get more money from you.

To give a practical example and explain why I’m not convinced what’s going on is legal.  My allowance is $30m2.  My tile of choice is $35m2 retail.  Lets say for argument sake my builder is paying $22m2.  My builder buys it off the shop and gst is payed on the purchase (gst on $22 m2).  The shop then invoices me directly for the difference between my allowance and the full retail price (allowance $30m2, retail $35m2, difference is $5 m2 on which i pay gst).  However no gst is payed on the $8 m2 that is the amount between what my builder paid and my allowance.

The way I see it a few people win and lose in this situation.  My builder wins because they charged me an allowance of $30m2, but only paid $22m2 for the goods.  The tile shop wins because they got the sale to the builder and a bit of cream on top from me.  I lose for obvious reasons.  But taxpayers including some of you also lose because the true GST payable wasnt paid.

As I understand this is a fairly widespread practice and besides the fact they seem to be avoiding some gst, it also seems to me that collusion like this may be illegal (or at least immoral).  Over to you..

What’s Your opinion?


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28 Responses to
Building allowance a rort?
Holden Caulfield 5:15 pm 23 Jan 12

watto23 said :

If I was the OP, i’d just want it explained and be upfront, rather than hiding some profit. From what I’ve seen, you really need a fine tooth comb going through a builders contract these days.

The issue here is the tile shop employee blabbing about their arrangement with the builder.

Either that employee is new/inexperienced or they don’t like the builder.

Apart from the $2m2 discrepancy between the allowance price and the off the street retail price, I’m still struggling to see what the OP is aggrieved at. I’d say $30m2 is the RRP and the tile shop is willing to sell at $28m2 because, shock horror, there’s a reasonable profit margin built in to the product and they can discount the RRP to win the business.

Isn’t stuff like that sort of standard practice? Sure, you’d prefer it to be up front, but in the end, if you’re paying a fair market price, what’s the big deal?

If the OP is able to buy tiles at the same rate as the builder then they’ll probably get an $8m2 discount too.

It’s not unfair, it’s just reality.

watto23 4:53 pm 23 Jan 12

Holden Caulfield said :

Thoroughly Smashed said :

Holden Caulfield said :

OMG I bet the tile company doesn’t pay $30/m2 or even $22m2. They must be stopped!

It’s called capitalism. There’s even a Wikipedia entry, maybe you should check it out.

And never mind the TPA, I guess.

Where is the problem? The problem is the added margin has become visible to the end consumer.

The builder isn’t a charity. He’s hardly going to be the only person in the world to pay one price for a product only to on-sell it at a greater price.

No issues with capitalism, but if there is a budget of $30 per sqm and the builder only pays say $22/sqm then IMO you have gone $8 per sqm under budget. However as the retail price is higher they end up paying an extra $5 per sqm as well.

I know in my company if we put a markup on the supply of anything we usually have to state the markup. Its ok to do so as it covers our expenses in handling and delivering the equipment.

If I was the OP, i’d just want it explained and be upfront, rather than hiding some profit. From what I’ve seen, you really need a fine tooth comb going through a builders contract these days.

Holden Caulfield 1:59 pm 23 Jan 12

Thoroughly Smashed said :

Holden Caulfield said :

OMG I bet the tile company doesn’t pay $30/m2 or even $22m2. They must be stopped!

It’s called capitalism. There’s even a Wikipedia entry, maybe you should check it out.

And never mind the TPA, I guess.

Where is the problem? The problem is the added margin has become visible to the end consumer.

The builder isn’t a charity. He’s hardly going to be the only person in the world to pay one price for a product only to on-sell it at a greater price.

ma7trlb 1:48 pm 23 Jan 12

if you think you can save $7 per sqm by supplying the tiles yourself, then have a chat with your builder about it. However be prepared for them to refuse to let you supply them, or worse still, install them, and then blame you when something goes wrong. Its a dicey line to tread, and depending on the volume of tiles to be ordered, probably $500 you can afford to absorb.

niceplacetolive 12:51 pm 23 Jan 12

The builder is likely factoring in:
GST input and output including BAS
paperwork and time to reconcile accounts with the tiling company
delivery costs
the warranty on the tiles
dealing with the tiling company to factor in delivery times etc

Thoroughly Smashed 12:41 pm 23 Jan 12

Holden Caulfield said :

OMG I bet the tile company doesn’t pay $30/m2 or even $22m2. They must be stopped!

It’s called capitalism. There’s even a Wikipedia entry, maybe you should check it out.

And never mind the TPA, I guess.

Holden Caulfield 12:21 pm 23 Jan 12

OMG I bet the tile company doesn’t pay $30/m2 or even $22m2. They must be stopped!

It’s called capitalism. There’s even a Wikipedia entry, maybe you should check it out.

pikiran_keruh 11:55 am 23 Jan 12

Why not buy the tiles yourself @ whatever price.

Deliver to builder and ask for a price reduction on PC items @ $30 m2?

Deref 11:43 am 23 Jan 12

I don’t know whether it’s legal or not, but I certainly hope it isn’t. Please tell us the outcome.

Jethro 11:40 am 23 Jan 12

JeanPierre9 said :

i think that this industry needs a good shake up in canberra.

+1

dtc 10:14 am 23 Jan 12

GST is paid on the cost of the item purchased. The list price of an item is irrelevant – for example, if the list price of a computer is $1000 and you negotiate to pay $900, you arent cheating on GST if you only pay $90 credit.

So if your builder pays $22 and you pay $5, the total price paid is $27. Its irrelevant that there exists some theoretical price of $35, because no one paid that.

If the builder pays $22 and charges you $30, then the GST paid is $3 (by you to the builder) – the difference between $22 and $30 is the builders profit. The store then charges you 50c GST on the balance. So the total GST is $3.50.

The builder doesnt ‘pay’ the GST, as its offset agains the GST the builder collects (from you) – only you (as the final consumer) pay the GST.

In other words, either you are only charged $27 (builders $22 plus the $5 from the shop) or you are charged $35 (the $30 you have paid to the builder and the $5 you have paid to the shop). Its what you pay, not what the ‘middle men’ pay, that determines the final GST.

watto23 10:01 am 23 Jan 12

Have you actually asked the tile shop what the trade price is? Then tell the builder the trade price is $x/m2 and its under your budget, so you’ll have a refund on the $30/m2.

See what they have to say when you call their bluff so to speak. Then if you get an unsatisfactory answer talk to consumer affairs or someone like that.

JeanPierre9 10:00 am 23 Jan 12

i think that this industry needs a good shake up in canberra.

androo 9:52 pm 22 Jan 12
JC 9:38 pm 22 Jan 12

Best you test it by taking your issue to consumer affairs, or what ever they are called this week. All you will get here is opinion which doesn’t help. So as I said take action and let us know how you went.

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