ATO Interpretative Decision
ATO ID 2002/31 (Withdrawn)
Goods and Services Tax
GST, legal fees and the margin schemeFOI status: may be released
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This ATO ID is withdrawn as it is superseded by Goods and Services Tax Ruling GSTR 2006/8 and the fact sheet 'GST and the margin scheme - real property acquired before 1 July 2000' (NAT 8680-08.2004).This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Can the entity, a property developer, include an amount incurred for legal fees, as part of the consideration for the acquisition of the interest in a property under section 75-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it subsequently sells that property and chooses to apply the margin scheme?
Decision
No, the entity cannot include an amount incurred for legal fees, as part of the consideration for the acquisition of the interest in a property under section 75-10 of the GST Act, when it subsequently sells that property and chooses to apply the margin scheme?
Facts
The entity is a property developer. The entity acquired real property after 30 June 2000. The entity incurred legal fees in the course of acquiring that property.
The entity is now selling the property as a taxable supply. The supply satisfies the requirements in section 75-5 of the GST Act, and the entity is choosing to apply the margin scheme in working out the amount of goods and services tax (GST) payable on the supply.
The entity is registered for GST.
Reasons for Decision
Subsection 75-10(1) of the GST Act provides that if a taxable supply of real property is under the margin scheme, the amount of GST on the supply is 1/11 of the margin for the supply.
The margin for the supply is the amount by which the consideration for the supply exceeds the consideration for an entity's acquisition of the interest, unit or lease in question (subsection 75-10(2) of the GST Act).
As the entity purchased the property after 30 June 2000, the transitional rules in subsection 75-10(3) of the GST Act do not apply. Therefore, the consideration for the entity's acquisition of the interest in the property is the purchase price of that property.
In this case, the entity incurred legal fees for services obtained in relation to the acquisition of the property. The legal fees do not represent consideration for the entity's acquisition of the interest in the property; but rather, represent the consideration for the entity's acquisition of a separate supply of legal services.
Therefore, the entity cannot include legal fees incurred in acquiring the property, as part of the consideration for the acquisition of the interest in the property under section 75-10 of the GST Act, when it subsequently sells that property and chooses to apply the margin scheme in working out the amount of GST payable on the supply.
Date of decision: 23 October 2001
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
section 75-10
subsection 75-10(1)
subsection 75-10(2)
subsection 75-10(3)
ATO ID 2002/30
Keywords
Goods & services tax
GST property & construction
GST margin scheme
GST sale of real property
ISSN: 1445-2782
| Date: | Version: | |
| 23 October 2001 | Original statement | |
| You are here | 24 August 2007 | Archived |