ATO Interpretative Decision

ATO ID 2013/18

Goods and Services Tax

GST and the application of the margin scheme to taxable supplies to associates for no consideration

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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 an entity use the margin scheme to work out the GST payable on a taxable supply of real property that was held prior to 8 December 2008, and made after 24 March 2010 to an associate for no consideration where the associate will not use the real property for a fully creditable purpose?

Decision

Yes. The entity can use the margin scheme to work out the GST payable on a taxable supply of real property that was held prior to 8 December 2008 and made after 24 March 2010 to an associate for no consideration where the associate will not use the real property for a fully creditable purpose, subject to the provisions of subsection 75-5(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Facts

The entity is registered for GST and is carrying on an enterprise in the building and construction industry. The entity has an associate who is carrying on an enterprise of supplying residential premises by way of lease.

On 1 November 2008 the entity acquired the freehold interest in real property from an arm's length supplier who was not registered, nor required to be registered for GST. The entity developed residential premises on the real property.

On 1 July 2010 the entity made a supply of the freehold interest in the real property as new residential premises to the associate. The entity and the associate agreed in writing that the margin scheme would be used to work out the GST payable on the supply.

Reasons for Decision

The entity has made a supply of a freehold interest of real property consisting of new residential premises to an associate for no consideration. The associate will not use the real property for a fully creditable purpose. Therefore the supply is a taxable supply by virtue of section 72-5 of the GST Act.

The supply of the freehold interest in the real property on 1 July 2010 is taken for the purposes of the GST law to be a sale in accordance with the provisions of section 72-20 of the GST Act. Section 72-20 Act applies to supplies made on or after 24 March 2010.

The entity has made a taxable supply of a freehold interest of real property to an associate, which is taken for the purposes of the GST law to be a sale. The entity and the associate have agreed in writing that the margin scheme is to apply. Therefore the relevant requirements of section 75-5(1) of the GST Act are met and the entity can apply the margin scheme to work out the GST payable on the taxable supply.

The supply is not ineligible for the margin scheme, as that term is defined in subsection 75-5(3) of the GST Act, as the entity acquired the freehold interest in the real property from an arm's length supplier who was not registered, nor required to be registered for GST.

It should be noted that, if the entity had acquired the real property on or after 8 December 2008, then a subsequent supply for no consideration made to an associate would be treated as a sale according to the application of the provisions of section 75-5 (1B) of the GST Act.

Date of decision:  8 April 2013

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 72-5
   section 72-20
   section 75-5(1)
   section 75-5(1B)
   subsection 75-5(3)

Keywords
Goods and services tax
real property
GST margin scheme
GST associates

Siebel/TDMS Reference Number:  1-4LSBM4H

Business Line:  Indirect Tax

Date of publication:  12 April 2013

ISSN: 1445-2782