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  • Mixed supply

    If the property you are selling is a mixed supply, that is, partly GST-free and partly taxable, you can apply the margin scheme to the taxable part of the sale. You may need to make an adjustment.

    If you purchased the property that you are selling through two or more individual purchases, and the 2008 amendments would apply for any of the individual purchases, the 2008 amendments will only apply to the individual purchases and not to the whole property that you are selling.

    See also:

    Apportionment

    The law does not expressly provide a means of working out the extent that your sale is connected with each of your purchases. We consider that an area-based apportionment is appropriate; however, other reasonable methods may also be appropriate in some circumstances.

    Using apportionment, the margin for your sale is worked out as follows:

    a. Work out the area of one of the individual purchases relative to the total area being sold (expressed as a percentage).

    b. Multiply this percentage by the price of your sale of the entire property (or the GST-inclusive market value of your sale if made to an associate).

    c. Apply the 2005 and 2008 amendments if necessary.

    Importantly, you do not need to apportion the payment for your purchase. The payment you provided for your purchase, unlike the sale price, relates only to that purchase (being part of the overall property you are selling) and, thus, you do not need to apportion.

    We refer to the amount you obtain in this manner as a partial margin.

    d. Repeat steps a to c for each individual purchase that you made to acquire the property you are selling.

    e. Add together the partial margins for each individual purchase. The result is the margin for your supply.

    Cost base method

    In practice, you can obtain the same result by using the following alternative steps:

    • having applied the 2005 and 2008 adjustments, if necessary, work out the 'cost base' for each individual purchase. By 'cost base', we mean the payment for your purchase or any equivalent valuation, GST-inclusive market value or payment provided by a GST group member for an earlier supply
    • add the cost bases together to obtain your overall cost base
    • the margin for your sale is the amount that the payment for your sale (or the GST-inclusive market value of your sale if made to an associate) exceeds your overall cost base.

    Example: Sale of property partly purchased from an associate without payment and partly purchased from an unrelated party

    In May 2009, Mike purchased two adjacent blocks of land (Block A and Block B). Block A is only half the size of Block B. Mike purchased Block A from Ian for $400,000 through a taxable sale made under the margin scheme. Ian is not an associate of Mike's.

    Mike purchased Block B from Linda, an associate, without making any payment. Linda was registered for GST at the time of Mike's purchase. Additionally, Linda's sale was made in the course of her business and was not a taxable sale. Linda purchased Block B in March 2007 for $600,000.

    Some time later, Mike consolidates the two blocks and sells his entire interest under the margin scheme to Terry, an unrelated party, for $1.5 million.

    Sale or property partly purchased from an associate without payment and partly purchased from an unrelated property

    If Mike's purchase from Ian had been the entire interest Mike sold to Terry, he could have used the consideration method to work out the margin. However, if Mike's purchase from Linda had been the entire interest Mike sold to Terry, he would have been ineligible to apply the margin scheme. In this case, section 75-16 of the GST Act applies. Under this provision, Mike's margin is calculated in accordance with steps a to e above for apportionment, as follows:

    • Block A is one-third of the total area of the interest Mike sells to Terry.
    • 1/3 × $1.5million = $500,000.
    • Under subsection 75-10(2) of the GST Act, Mike's 'partial margin' is $100,000 ($500,000 − $400,000).
    • Repeat steps a to c for Block B. Block B is two-thirds of the total area. Two-thirds of the sale price of $1.5 million is $1 million. Under subsection 75-11(6) of the GST Act the 'partial margin' is $400,000 ($1,000,000 − $600,000), given Linda purchased the block for $600,000.
    • The total margin is therefore $500,000 ($100,000 + $400,000).

    The same result would have been obtained if Mike's margin was instead calculated under the cost base method:

    • The cost base for Mike's purchase from Ian is $400,000 (under subsection 75-10(2) of the GST Act) and the cost base for Mike's purchase from Linda is $600,000 (under subsection 75-11(6) of the GST Act).
    • Mike's 'overall cost base' is $1 million ($400,000 + $600,000).

    Mike's margin is therefore $500,000 ($1.5 million − $1 million), and the GST payable is one-eleventh of that margin ($45,455).

    End of example

    Making an adjustment

    If either you or the previous owner amalgamated the property that you are seeking to sell under the margin scheme you may need to make an adjustment to the GST paid.

    Where you amalgamated the property

    If the 2005 amendments apply

    Immediately before the 2008 amendments started, you would have an increasing GST adjustment if all of the following applied:

    • you made a taxable sale of property under the margin scheme
    • a purchase you made of part of the property you are selling was made through a sale that was ineligible for the margin scheme
    • you were entitled to a GST credit for the purchase of this part of the property.

    An increasing GST adjustment is an adjustment which increases your net amount of GST for the tax period. The amount of the adjustment is an amount equal to the previously claimed GST credit for the property purchased.

    Example: Increasing GST adjustment for amalgamated land purchased partly as a GST-free going concern and partly through a taxable sale not made under the margin scheme

    In December 2006, Derek purchased land from Debra for $550,000 through a fully taxable sale and GST was worked out without using the margin scheme. Derek claimed a GST credit of $50,000 for his purchase.

    In March 2007, Derek purchased an adjacent block of land from Martin as part of a GST-free sale of a going concern. Martin purchased the land from Lin before 1 July 2000. The land contained a shop which Derek continued to operate. Derek amalgamated the land under a single title.

    In April 2009, Derek was approached by a property developer, Kerry, seeking to purchase the land that Derek had purchased from Debra and Martin. Derek sold the amalgamated land to Kerry using the margin scheme.

    Increasing adjustment for consolidated land purchase partly as a GST-free going concern and partly through a taxable sale not made under the margin scheme

    Derek has an increasing GST adjustment for his sale to Kerry because:

    • he made a taxable sale of property using the margin scheme
    • the purchase of part of the interest was made through a fully taxable sale that was ineligible for the margin scheme (the purchase from Debra)
    • he was entitled to a GST credit of $50,000 for that purchase.

    The amount of the increasing GST adjustment is $50,000 (assuming that Derek has had no other adjustments for this purchase).

    End of example
    If the 2008 amendments apply

    The adjustment rule discussed above applies to both the 2005 and 2008 amendments.

    The 2008 amendments, which make you ineligible for the margin scheme when you purchase property that is a GST-free going concern, GST-free farmland or from an associate for no payment, will apply to any part of the property you amalgamated.

    Example: Increasing adjustment for amalgamated land purchased partly as a GST-free going concern

    In May 2009, John purchased real property as part of a GST-free going concern from Mary. Mary had purchased the entire interest in the property through a fully taxable sale and GST was worked out without using the margin scheme. Mary purchased the property for $220,000 and was entitled to a $20,000 GST credit. Mary was registered for GST at the time of John's purchase of the going concern.

    John amalgamated the land he purchased from Mary with land that he had earlier purchased from Rob. The sale of the land from Rob was a taxable sale and GST was worked out using the margin scheme.

    Sometime later, John sold the amalgamated land under the margin scheme.

    Increasing adjustment for consolidated land purchased partly as a GST-free going concern

    John has an increasing adjustment because:

    • he made a taxable sale of property using the margin scheme
    • a purchase he made of part of the interest he sold (the purchase from Mary) was made through a sale that was ineligible for the margin scheme
    • Mary had been entitled to a GST credit for her purchase.

    The amount of the increasing adjustment is equal to either:

    • one-eleventh of an approved valuation of the property as at the date Mary purchased it - if John chooses to apply an approved valuation to work out the amount
    • $20,000 (being one-eleventh of the amount paid by Mary for the property).
    End of example

    Where the previous owner amalgamated the property

    Under the 2005 amendments, an adjustment will not arise to offset a GST credit that the previous owner claimed.

    If the 2008 amendments apply, and the previous owner purchased any part of the property (that they sold to you) through a fully taxable sale that was not made under the margin scheme, you need to know:

    • if the previous owner was entitled to a GST credit for their purchase of that part of the property
    • the amount paid by the previous owner for their purchase of that part of the property.

    Alternatively, if you choose to obtain an approved valuation to work out your adjustment, you need to know the date the previous owner purchased that part of the property.

    Under the 2008 amendments, if the previous owner who sold you the land amalgamated that land and was entitled to a GST credit for the purchase of part of that land, you will have an increasing adjustment if you use the margin scheme on a sale of land that you purchased partly through any of the following:

    • a GST-free sale of a going concern
    • GST-free farm land
    • a non-taxable sale from a registered associate.

    The increasing adjustment effectively offsets the GST credit claimed by the previous owner.

    Example: Increasing adjustment for property purchased as part of a GST-free going concern the previous supplier amalgamated

    In April 2009, Greg purchased property as part of a GST-free going concern from Quyen. Quyen was registered for GST at the time of Greg's purchase.

    Quyen had purchased the (amalgamated) property he sold to Greg through two separate purchases. The first of these purchases, from Angelo, was made through a taxable sale and GST was worked out without using the margin scheme; the second, from Peter, was made through a sale and the margin scheme was used. The payment for Quyen's purchase from Angelo was $330,000. Quyen was entitled to a GST credit of $30,000.

    In August 2009, Greg sold the property he purchased using the margin scheme.

    Increasing adjustment for property purchased as apart of a GST-free going concern the previous supplier consolidated

    Greg has an increasing adjustment because:

    • he made a taxable sale of property using the margin scheme
    • his purchase of the property from Quyen was GST-free
    • Quyen:    
      • purchased part of the property through a fully taxable sale (from Angelo) that would have been ineligible for the margin scheme
      • had been entitled to a GST credit for his purchase from Angelo
      • was registered for GST at the time of Greg's purchase of the property.
       

    The amount of the increasing adjustment is equal to either:

    • one-eleventh of an approved valuation of the property as at the date Quyen purchased the property from Angelo - if Greg chooses to apply an approved valuation to work out the amount
    • $30,000 (being one-eleventh of the amount paid for Quyen's purchase of the property from Angelo).
    End of example
      Last modified: 27 Apr 2018QC 18646