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Authorisation Number: 1051248315570
Date of advice: 10 July 2017
Subject: GST and calculation of the margin and nomination fee
Can the nomination fee form part of the total consideration paid for the acquisition of the properties for the purposes of applying the margin scheme under subsection 75-10(2) of A New Tax System (Goods and Services Tax) Act 1999?
No, the nomination fee does not form part of the consideration for the acquisition of the properties for the purposes of applying the margin scheme under subsection 75-10(2) of the GST Act.
Relevant facts and circumstances
● The applicant is registered for goods and services tax (GST).
● The applicant carries on an enterprise of property investment and specifically established for the purposes of acquiring X properties.
● The applicant became party to the contract after the original purchaser named in the contract nominated the applicant into the contract pursuant to a Deed of Nomination.
● Under the terms of the Nomination Deed the applicant agreed to:
● Settle the contract by paying all amounts due.
● Pay a sum of $XXX as nomination fee to the purchaser.
● The nomination fee reflects the value of the properties at the nomination date.
● The Nomination Deed states that the parties agree that the Nomination fee represents a component of the purchase price of the properties but is in addition to all amounts payable under the contract.
● The applicant developed both properties into residential apartments. A majority of the apartments were pre-sold prior to the commencement of construction under the margin scheme.
● The applicant proposes to use the total consideration including the nomination fee as the cost base to calculate the margin for the sale of the residential apartments.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 – subsection 75-10(2)
A New Tax System (Goods and Services Tax) Act 1999 – section 75-11
Reasons for decision
The margin scheme is a method of calculating the GST payable on the following supplies of real property:
● the sale of a freehold interest in land,
● the sale of a stratum unit, and
● granting or selling a long-term lease.
The margin is generally the difference between the sale price and one of the following:
● the amount you paid for the acquisition of the property,
● the value of the property provided in an approved valuation of the property as at 1 July 2000 (if certain conditions are satisfied)
Subsection 75-10(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that subject to subsection (3) and section 75-11, the margin for the supply is the amount by which the consideration for the supply exceeds the consideration for your acquisition of the interest, unit or lease in question.
The margin scheme can only apply to the supply of freehold interest in land, stratum unit and granting or selling a long term lease. And as per subsection 75-10(2) of the GST Act, the margin is calculated using the original consideration paid for the acquisition of the interest, unit or lease in question. Therefore, any other payments made other than for the acquisition of the interest, unit and lease in question are not included in the calculation of the margin.
The supply of right to purchase the X properties and the supply of the X properties by the respective vendors are X separate supplies.
Subsection 9-17(1) of the GST Act provides that if a right or option to acquire a thing is granted, then the consideration for the supply of the thing on the exercise of the right is limited to any additional consideration provided either for the supply or in connection with the exercise of the right.
Section 195-1 of the GST Act provides that consideration for a supply or acquisition means any consideration within the meaning given by sections 9-15 and 9-17 of the GST Act, in connection with the supply or acquisition. Subsection 9-17(1) of the GST Act prescribes what is consideration in a right or option situation; and section 195-1 of the GST Act incorporates these rules into the meaning of consideration for a supply or acquisition. Accordingly, subsection 9-17(1) is relevant to determining what is consideration for an acquisition under subsection 75-10(2) of the GST Act.
In the context of supply of a right to purchase of a real property, subsection 9-17(1) of the GST Act recognises that the supply of the right is a separate supply to the supply of the underlying property.
The applicant contends that subsection 9-17(1) of the GST Act does not apply to nominations because the way in which a nomination exposes a nominee to obligations under the primary contract of sale, rather than conferring a separate right to acquire the underlying real property.
However, paragraph 22 of Goods and Services Tax Determination: GSTD 2014/2 explains that the interaction of subsections 9-17(1) and 75-10(2) of the GST Act results in the consideration for the acquisition of the interest, unit or lease being limited to the additional consideration provided on exercise of the option or right. Therefore, the nomination fee is not included as part of the consideration for the acquisition in calculating the margin under subsection 75-10(2) of the GST Act.