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  • Valuations

    If you are using the valuation method to sell property under the margin scheme, you must use an approved method of valuing your property.

    There are three valuation methods available:

    • an approved valuation
    • a valuation based on the payment the seller receives under a contract of sale (if the contract was entered into before the valuation date)
    • a valuation prepared by a state or territory department for rating or taxing purposes.

    For properties that are partly completed premises at the valuation date, you must use the value in writing obtained from a professional valuer.

    A valuation must:

    • objectively show that the valuer undertook the valuation process according to valuation industry practices
    • be documented and explained well enough that another valuer can      
      • understand how the valuer worked out the value
      • replicate the process.

    As a general rule, you must have undertaken a valuation by the due date for lodging your activity statement for the tax period the sale applies to.

    Find out about:

    See also:

    • MSV 2005/3 Margin Scheme Valuation Requirements Determination
    • MSV 2009/1 Margin Scheme Valuation Requirements Determination

    Approved valuation

    If you choose to use an approved valuation, it must:

    We have included a useful checklist to help you confirm a valuation is an approved valuation.

    Professional valuer

    A professional valuer is any of the following:

    • a person registered or licensed to carry out real property valuations under a Commonwealth, state or territory law
    • a person who runs a business as a valuer in a state or territory where that person is not required to be licensed or registered to do so
    • a person who is      
      • a member of the Australian Property Institute, and accredited as a Certified Practicing Valuer
      • a member of the Royal Institute of Chartered Surveyors, and accredited as a Chartered Valuation Surveyor
      • a member of the Australian Valuers Institute, and accredited as a Certified Practicing Valuer.

    Market value as at valuation date

    Property valuers generally adopt the International Valuation Standards Committee's (IVSC) definition of market value and base their valuation on the property's highest and best use.

    A valuer should take into account all known factors at the time the valuation is being prepared that could affect the market value of the property as at the valuation date, including but not limited to:

    • the physical and legal state of the property
    • interest in the land
    • improvements
    • buildings and machinery fixed to the land
    • any property rights connected to the property
    • the approved zoning.

    If the property is contaminated at the valuation date, the valuer should work out its market value based on its contaminated condition on that date. They may only take into account any remediation work or improvements made to the property up to the valuation date.

    See also:

    Valuation date

    Generally, the valuation date for the property is either of the following:

    • 1 July 2000 – if you held or owned the property before 1 July 2000 and were registered (or required to be registered) for GST at that date
    • the date you were registered (or required to be registered) for GST, if you held or owned the property before 1 July 2000 and were not registered (or required to be registered) until after that date.

    Even though you must value a property as it was at the valuation date, you don't have to undertake the valuation process on that date.

    Value of the property interest that existed at the valuation date

    If the interest that existed at the valuation date is different to the interest you are selling you:

    • must obtain a value of the interest that existed at the valuation date
    • need to apportion that value on a reasonable basis.

    Example 1:

    Headline Property Group registered for GST on 1 July 2000. It is undertaking a four-stage residential development over three years on land that it has owned since 1996. Each stage of the development will be made up of at least 20 individual allotments. At the valuation date of 1 July 2000, Headline held a single large allotment of land as it had not subdivided the land yet.

    Headline should do both of the following:

    • obtain the market value of the single large allotment as at 1 July 2000
    • apportion this value over the four stages of the development on a reasonable basis.

    The value it assigns to each stage cannot exceed the total value of the single large allotment. Once Headline assigns an apportioned value to each stage, it must apportion further to allocate a value to each individual allotment in that stage.

    End of example

    Example 2:

    Appa Holdings registered for GST on 1 July 2000. It is developing a residential strata unit complex of 45 units on a single allotment that it purchased in 1997. At the valuation date of 1 July 2000, Appa held the single allotment as vacant land.

    Appa should:

    • obtain the market value of the vacant allotment as at 1 July 2000
    • apportion this value between the 45 units on a reasonable basis.
    End of example

    Example 3:

    The Marshall and Howard partnership registered for GST on 1 June 2007 as they wanted to develop their land into a residential strata unit complex of 12 units. The partnership has owned the land they are planning to develop since 1985. On the land is a residential dwelling that the partnership leased to tenants up until April 2007. As at 1 June 2007, the residential property remains on the land but is unoccupied.

    The partnership should:

    • obtain the market value of the property at the valuation date of 1 June 2007 (recognising that the interest that existed at the valuation date was land that contained a residential property)
    • apportion this value between the 12 units on a reasonable basis.
    End of example

    Signed certificate

    The signed certificate must specify the:

    • full description of the property being valued
    • applicable valuation date
    • date the valuer provides the valuation to you
    • market value of the property at the valuation date
    • valuation approach and any calculation
    • name and qualifications of the valuer.

    Written report

    Along with the signed certificate, the valuer should provide you with the following information in their written report:

    • a description of the asset
    • the purpose and context of the valuation
    • the date of the valuation
    • the method or methods used
    • the reasons for the methods used
    • the specific value
    • the information relied on
    • an evaluation of this information
    • the assumptions relied on
    • an evaluation of these assumptions
    • any material risks
    • any previous valuations used
    • explanations of material differences
    • expert reports and the use of experts
    • the terms of engagement
    • the relationship between the valuer and client
    • the working papers
    • any disclaimers and indemnities
    • the valuer's details and qualifications
    • whether the valuer undertook this process according to valuation industry practices.

    If the information is not contained in the written valuation report it should be readily available in the valuer's working papers.

    Valuation checklist

    Use these checklist questions to work out if a valuation provided by a professional valuer for your property is an approved valuation for GST purposes.

    Requirements for an approved valuation

    • Is the person providing you with a valuation a professional valuer?
    • Do you have a written valuation report?
    • Does the valuation report detail the valuation process?
    • Does the valuation provide a market value of the real property interest that existed at the valuation date?
    • (This may not be the same interest that you are selling.)
    • If you need to apportion the market value to the interest that you are selling, have you done this on a reasonable basis?
    • Has the valuer:  
      • made the valuation according to professional standards
      • listed the facts correctly
      • used the appropriate valuation methods
      • made reasonable assumptions
      • taken into account any contamination as at the valuation date?
    • Does the valuation report contain a signed certificate? 
    • Did you obtain a valuation before you had to report the property sale on your activity statement?

    Deadline for valuation

    You must have the property valued before the due date for your activity statement for the tax period in which you sell (settle) the property.

    There may be exceptional circumstances that prevent you from obtaining a valuation by your activity statement due date. If you have made an oversight we may allow you a short period to obtain an approved valuation.

    If you have an approved valuation by your activity statement due date and you work out the margin based on that valuation, you cannot later change to either:

    • another valuation
    • a different method of valuation
    • an amount based on your purchase price (the consideration method).

    If you have more than one approved valuation, you must choose one of these by the activity statement due date. After that time you cannot change.

    See also:

    • PS LA 2005/16 Further period to make an approved valuation for the purposes of working out the margin for the supply under Division 75 of the A New Tax System (Goods and Services Tax) Act 1999

    If your valuation is not valid

    If you find that the valuation method you used is not one of the approved valuation methods, we may allow you to work out the margin on the sale again. If you correct a valuation or use a different valuation, and you must pay more GST, we may apply administrative penalties and the general interest charge. However, if you have made a genuine mistake, we will not apply administrative penalties.

    Sales prior to 29 June 2005

    If you sold your property under the margin scheme before 29 June 2005, and used the valuation method to work out the margin, different valuation methods may apply.

    The different valuation methods are contained in the following Margin Scheme Valuation Determinations:

    Settlement on or after 1 July 2018

    There have been law changes on certain property transactions starting on 1 July 2018.

    The property transactions affected are taxable supplies of new residential premises or potential residential land. Contracts for these transactions entered into before, on, or after 1 July 2018 are impacted by the changes. There is transitional relief available for suppliers and purchasers that have entered into contracts before 1 July 2018.

    Instead of paying the full contract price to the GST-registered supplier (for example, vendors, sellers, property developers) at settlement, a purchaser is now required to withhold an amount from the contract price and pay that amount directly to us.

    The amount a purchaser must withhold and remit to us is:

    • 1/11th of the contract price (for fully taxable supplies)
    • 7% of the contract price (for margin scheme supplies)
    • 10% of GST exclusive market value of the supply (for supplies between associates for a price less than GST inclusive market value).

    This law change does not affect the supplier's obligation to lodge their Business activity statement (BAS) and report their GST liabilities/entitlements on taxable supplies of these types of properties.

    Example: Withholding when sale is under the margin scheme

    BuildCo has developed new residential premises (a house) on land they acquired for $228,000 in 2009. The supply to Buildco was under the margin scheme and Buildco is entitled to apply the margin scheme to their subsequent sale as long as the purchaser agrees.

    On 9August 2018, Tom enters into a contract for the purchase of the new house from BuildCo for $800,000 and pays an $80,000 deposit. Tom and BuildCo have agreed in writing that the supply will made using the margin scheme.

    The contract of sale included the required supplier notice information and that $56,000 (for example, 7% of $800,000) needs to be withheld and remitted to the ATO. This information enables Tom's conveyancer to complete the GST property settlement withholding notification (Form 1) online and obtain a Payment Reference Number (PRN) and Lodgment Reference Number (LRN).

    This allows the amount withheld and remitted by Tom to be matched with BuildCo's account, once Buildco's relevant Business Activity Statement has been lodged.

    Settlement occurs on 2 November 2018. At settlement, Tom's conveyancer:

    • lodges the GST settlement date confirmation (form 2) using the PRN and LRN  
      • pays the balance of the apartment purchase price of $664,000 ($800,000 less $80,000 deposit less $56,000 GST) to BuildCo
    • pays the withheld amount of $56,000 to us electronically.

    Supplier's Margin Scheme Calculation:

    BuildCo's margin scheme cost base is $228,000 as the property was acquired after 1 July 2000.

    BuildCo's GST margin is calculated as the new house's sale price less the amount paid for acquiring the property in 2009.

    The GST margin = $572,000 ($800,000 -$228,000).

    The GST liability = $52,000 (margin of $572,000*1/11th).

    This GST liability equates to 6.5% of the $800,000 purchase price.

    BuildCo lodges their December 2018 BAS and includes the margin of $572,000 at Label G1 and GST of $52,000 at Label 1A.

    The $56,000 credit amount withheld and remitted by Tom is offset against the BAS net amount of $52,000 (assuming no other entries on BAS) when the BAS is processed.

    BuildCo receives a GST refund of $4,000 being the difference between the amount withheld by Tom and the actual GST liability on the sale of the new residential premises.

    End of example

    See also:

    GST at settlement

      Last modified: 19 Jun 2018QC 18646