Edited version of private ruling

Authorisation Number: 1011889265326

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Ruling

Subject: Valuation of property for the application of the margin scheme

Question 1

Should the valuation of the property as at 1 July 2000 include the improvements on the land that existed on that day?

Answer

Yes, the valuation of the property as at 1 July 2000 must include the improvements on the land that existed on that day.

Question 2

Is the intended apportionment method correct?

Answer

Yes. See details below

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

· You are an entity and you are registered for the goods and services tax (GST).

· You acquired a property before 1 July 2000.

· The property consisted of improvements, in the form of a house and a detached shed, at the time of the acquisition and these improvements were still in place as at 1 July 2000.

· The house and shed have only recently been demolished.

· The property was subdivided into two lots.

· You intend to sell one of the lots as vacant land under the margin scheme provisions.

· You intend to obtain an approved valuation of the whole property as at 1 July 2000.

· You are of the view that each square metre of the land has an equal value as there is nothing to distinguish one part from another.

· You also intend to apportion the value obtained as at 1 July 2000 on area basis to the portion of land to be sold.

Reasons for decision

Question 1: Improvements that existed on the valuation date

Section 75-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) specifies that the margin for the supply is the amount by which the consideration for the supply exceeds the amount determined by the approved valuation of the interest as at the appropriate date applicable to the supply as specified in this section.

In your case the appropriate valuation date is 1 July 2000.

You acquired the property before 1 July 2000. As at that date the property consisted of a house and shed. Subsequent to that date you demolished the house and the shed and subdivided the property into two parts. You intend to sell one of these parts.

Australian Taxation Office (ATO) publication, "Fact sheet for property sellers" (NAT 73397-07.2010), which provides information on valuations for the margin scheme, states:

"You need to obtain the value of the property interest that existed at valuation date, which may not necessarily be the interest that you are selling. 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."

Further, Goods and Services Tax Ruling 2006/7 (GSTR 2006/7) provides the ATO view on how the margin scheme applies to a supply of real property made on or after 1 December 2005 or held before 1 July 2000. You held the property before 1 July 2000 and intend to supply it at a future date.

Paragraphs 66 to 69 of GSTR 2006/7 deal with question: "What is the real property you value?" Paragraphs 67 and 68 of GSTR 2006/7 state:

67. Often the real property that is supplied was not in existence at the valuation date. Examples of this are:

· land that was acquired as broadacres and is later subdivided and sold; and

· land on which units are built.

68. If the real property that is supplied was not in existence at the valuation date but was, for example, subdivided from the interest that was in existence at that date, the valuation must be made as follows:

(a) a valuation of the interest, unit or lease in existence at the valuation date is undertaken; and

(b) the valuation of that interest, unit or lease is then apportioned on any fair and reasonable basis, to ascertain the part of the valuation that relates to the interest, unit or lease that you supplied. It is not necessary for the apportionment to be undertaken by a professional valuer if the professional valuation method is used to value the real property.

Therefore, the approved valuation for the whole property as at 1 July 2000 will need to consider the improvements on the land as at that date. That is, the value of the house and the shed must be taken into account in the valuation.

Question 2: Apportioning method

Neither the GST Act nor the GSTR 2006/7 prescribes how an apportionment should be carried out. GSTR 2006/7 provides guidance on what is to be valued and the requirements for making valuations for the purposes of applying the margin scheme for GST purposes. However, as stated in paragraph 68(b) of the GSTR 2006/7, the method adopted by the supplier must be "fair and reasonable".

You also inform that the land is of uniform value per square metre. Therefore, your apportionment method is acceptable to the Commissioner.

Additional information

For the purposes of the margin scheme, an approved valuation is a valuation that meets the requirements contained in the Margin Scheme Valuation Requirements Determinations.

A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2005/3 (MSV 2005/3) and A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2009/1 (MSV 2009/1) apply to taxable supplies of real property made on or after particular dates.

MSV 2005/3 specifies the requirements for making valuations for calculating the margin for taxable supplies of real property made on or after 1 December 2005 for the purposes of Division 75 of the GST Act.

MSV 2009/1 specifies the requirements for making valuations for the purposes of applying the margin scheme in Division 75. The requirements apply to valuations for taxable supplies of real property made on or after 1 March 2010.

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