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Ruling

Subject: GST and sale of vacant land

Question 1

Can the GST payable on the sale of the residential allotments be calculated using the margin scheme?

Answer

No, the GST payable on the sale of the residential allotments cannot be calculated using the margin scheme.

Question 2

Can you delay the GST payable on the sale of the residential allotments until the completion of the development?

Answer

No, you cannot delay the GST payable on the sale of the residential allotments until the completion of the development.

Relevant facts and circumstances

You are registered for GST and carry on a property development enterprise.

On a specified date you purchased a vacant block of land (the vacant land) with the intention of developing the property for medium density housing.

Initially, you obtained council approval to build certain number of residential premises. However, due to a series of unforseen issues you were unable to proceed with the construction.

Later on you were forced to make the decision to reduce the size and type of development and submitted another development application. Only half of the available land was needed for this reduced design, so you applied for approval to divide the excess land into a number of residential allotments (the allotments).

You have sold the allotments and the settlement took place in a specified quarterly tax period (the specified quarterly tax period).

The sale of the vacant land to you was a taxable supply on which GST was worked out without applying the margin scheme. You claimed a credit for the GST included in the sale price.

Our records show that you account for GST using the non cash method and have quarterly tax periods.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5.

A New Tax System (Goods and Services Tax) Act 1999 subsection 75-5(1).

A New Tax System (Goods and Services Tax) Act 1999 subsection 75-5(2).

A New Tax System (Goods and Services Tax) Act 1999 subsection 75-5(3).

A New Tax System (Goods and Services Tax) Act 1999 paragraph 75-5(3)(a).

A New Tax System (Goods and Services Tax) Act 1999 subsection 29-5(1).

Reasons for decision

Question 1

Summary

You cannot use the margin scheme to calculate the GST payable on the sale of the allotments as the supply of the vacant land to you was a taxable supply on which the GST was worked out without applying the margin scheme.

Detailed reasoning

Section 75-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) sets out the requirements that must be satisfied in order to be able to use the margin scheme.

Subsection 75-5(1) of the GST Act states:

The *margin scheme applies in working out the amount of GST on a *taxable supply of *real property that you make by:

· selling a freehold interest in land; or

· selling a *stratum unit; or

· granting or selling a *long term lease;

· if you and the *recipient of the supply have agreed in writing that the margin scheme is to apply.

(* denotes a term defined in the GST Act)

One of the requirements of subsection 75-5 of the GST Act is that you make a taxable supply of real property.

A supply is a taxable supply if it meets all the requirements of section 9-5 of the GST Act. Section 9-5 of the GST Act states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

In your case the sale of the allotments is a taxable supply as it meets all the requirements of section 9-5 for the following reasons:

· The sale is for consideration.

· The allotments are your business assets and hence the sale of the allotments is in the course or furtherance of your property development enterprise.

· The sale is connected with Australia as the allotments are located in Australia.

· You are registered for GST.

· The sale is neither GST-free nor input taxed under a provision of the GST Act or a provision of another Act.

However, subsection 75-5(2) of the GST Act provides that the margin scheme does not apply if you acquired the entire freehold interest, stratum unit or long-term lease through a supply that was ineligible for the margin scheme.

Subsection 75-5(3) of the GST Act sets out the circumstances when a supply is ineligible for the margin scheme. Under paragraph 75-5(3)(a) of the GST Act, a supply is ineligible for the margin scheme if it is a taxable supply on which the GST was worked out without applying the margin scheme.

In your case, the supply of the vacant land to you was a taxable supply on which the GST was worked out without applying the margin scheme. Accordingly, you cannot use the margin scheme to calculate the GST payable on the sale of the allotments.

For further information, please refer to Goods and Services Tax Ruling Goods GSTR 2006/8 Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000. This ruling is available on our website at www.ato.gov.au

Question 2

Summary

There are no provisions in the GST Act which would allow you to delay the payment of the GST on the sale of the allotments until the development is completed.

Detailed reasoning

Pursuant to subsection 29-5(1) of the GST Act, where an entity does not account for GST on a cash basis the entity is required to attribute all the GST payable on a taxable supply to the earlier of the tax period in which:

· any of the consideration for the supply is received, or

· an invoice for the supply is issued.

Goods and Services Tax Ruling GSTR 2000/28 Goods and services tax: attributing GST payable or an input tax credit arising from a sale of land under a standard land contract, explains when to account for GST payable or input tax credits on the sale of land under a standard land contract.

GSTR 2000/28 only applies to a sale of land that is made under a 'standard land contract' as defined in that ruling. Paragraphs 10 to 13 of GSTR 2000/8 state:

10. This Ruling uses the term 'standard land contract'. This term refers to the standard contract for the sale of land as prepared by the various law societies or institutes and real estate institutes in Australia, with the features mentioned in paragraph 13 below.

11. For the purposes of this Ruling, this term also covers contracts for the sale of land similar to those prepared by the law societies or institutes and real estate institutes where the contracts include the features mentioned in paragraph 13.

12. Where the terms of a contract for the sale of land vary one or more of the features in the following paragraph, it will not be treated as a standard land contract for purposes of this Ruling and this Ruling will not apply to that contract.

13. For purposes of this Ruling, a standard land contract is a written contract for the sale of land that provides for:

· the payment of a deposit that is either to be forfeited if the purchaser defaults or applied as consideration on settlement; and

· the payment of the balance of the purchase price upon settlement.

You advised that the sale of the allotments was settled in the specified quarterly tax period.

If the sale of the allotments was made under a standard land contract as defined in GSTR 2000/28, the GST payable on the sale of the allotments is attributable to the specified quarterly tax period being the tax period in which settlement took place.

If the sale of the allotments was not made under a standard land contract then the GST payable is attributable to:

the tax period in which you received any of the consideration for the supply, or

if, before any of the consideration is received, you issued an invoice relating to the supply - the tax period in which the invoice was issued.

Please note that there are no provisions in the GST Act which would allow you to delay the attribution of the GST on the sale of the allotments for any reason.

GSTR 2000/28 is available on our website at www.ato.gov.au

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