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Ruling

Subject: Margin scheme and valuation

Questions

For the purposes of paragraph 75-11(7)(d) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act ) please confirm that the evaluation of the market value of the property covered by Strata Plan XXX maybe undertaken by any person, skilled and permitted to give valuations, or informed estimates of value such as a real estate agent.

Please confirm that the market value of the whole of the property XXX at the time of the acquisition can be divided by a number to arrive at the "cost" of the underlying land for the Unit for margin scheme purposes, or

The valuation of the whole property referred to in (2) is discounted by the replacement costs of internal walls and internal fixtures and fittings in all of the pre-existing units and the result divided by a number to arrive at the "cost" of the underlying land for the unit for margin scheme purposes.

Answers:

1. Yes, we confirm that the valuation of the market value of the property covered by Strata Plan XXX maybe undertaken by a person, such as a real estate agent, without formal valuation qualifications whose assessment is based on reasonably objective and supportable data. For tax purposes, it is usually the valuation process undertaken rather than who conducted it that governs the acceptability of the valuation. However, the person who provides the assessment of market value should have specific knowledge, experience and judgment in that particular field. While professional qualifications may add weight to the valuer's opinion, he or she should also display personal integrity and competence. To ensure the objectivity of the report, the valuer should be independent of the interests of the party commissioning the report.

2. In accordance with GSTR 2006/8 the apportionment of land to ascertain the value of a subdivided lot must be on a fair and reasonable basis.

3. Please see answer 2.

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 the Owners Corporation of Strata Plan XXX. You were established upon registration of the Strata Plan. You are registered for GST.

You carry on an enterprise of managing and maintaining a residential building containing several apartments.

The Owners passed a special resolution at a general meeting of the Owner's Corporation, authorising the Owner's Corporation to subdivide the common property to create a new residential lot (the unit).

The result was that the legal and beneficial interest in the unit vested in the Owner's Corporation upon the registration of the strata plan of subdivision. The unit is currently on the market for sale.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 75-11(7)

Reasons for decisions

Question 1:

Subsection 75-11(7) of the GST Act states:

(7) If:

(a)  you acquired the interest, unit or lease in question from an entity who was your *associate at the time of the acquisition; and

(b)  none of the other subsections of this section apply;

the margin for the supply you make is the amount by which the *consideration for the supply exceeds:

(c)  if your acquisition was made before 1 July 2000 - an *approved valuation of the interest, unit or lease as at 1 July 2000; or

(d)  if your acquisition was made on or after 1 July 2000 - the *GST inclusive market value of the interest, unit or lease at the time of the acquisition.

Since the unit's acquisition was made after 1 July 2000, paragraph 75-11(7) (d) of the GST Act does not require an "approved valuation" to be obtained, only the GST inclusive market value of the unit at the time of the acquisition. We agree that, subject to allowing for costs of subdivision, it would be fair and reasonable to determine a valuation of the land relating to the unit based on a relevant apportionment of the value of whole property covered by Strata Plan XXX as at the date of the acquisition of the unit.

Therefore, you might seek a valuation or informed estimate of value by a person, such as a real estate agent, without formal valuation qualifications whose assessment is based on reasonably objective and supportable data. However, please take note that it is the valuation process undertaken rather than who conducted it, that governs the acceptability of the valuation. Please refer to Market valuation for tax purposes guidelines at www.ato.gov.au

Question 2:

The relevant ruling is Goods and Services Tax Ruling GSTR 2006/8 which applies where the real property that was supplied was acquired on or after 1 July 2000.

In a strata development, an apportionment based on lots would be acceptable, unless an apportionment based on lots would not lead to a fair and reasonable outcome (for example, if the units are significantly different in size or value).

Paragraphs 58 to 68 of GSTR 2006/8 provides the apportion methods to ascertain the proportion of the price that related to the subdivided allotment or stratum unit.

Apportionment methods

58. To ascertain the proportion of the purchase price that relates to the subdivided allotment or stratum unit, you may use any fair and reasonable method of apportionment. The method of apportionment used must result in the sum of the proportionate amount of the purchase price that relates to each subdivided allotment or stratum unit equalling in total, the actual consideration for the acquisition. You cannot change the method of apportionment after sales of allotments or stratum units have been made unless the changed method is applied to calculate the margin for all the sales.

59. Examples of some methods that you may use are as follows:

· area - the consideration for the real property acquired is apportioned on the basis of the proportion of the total saleable area of the development represented by the particular lot;

· lots or sites - the apportionment is based on the number of lots or sites;

· anticipated selling price - the consideration for the real property that you acquired is apportioned on the basis of the proportion of the total anticipated selling price of the development represented by the particular lot; and

· total aggregated selling prices - the consideration for the real property that you acquired is apportioned on the basis of the proportion of the total aggregated selling prices of the development represented by the particular lot. This method is only suitable for a development where all the lots are sold in a time that allows the aggregated selling prices to be calculated by the time the relevant Activity Statements are due to be lodged.

60. The methods above may be used provided they give a fair and reasonable result. Use of 'lots or sites' as an apportionment method would not give a fair and reasonable result if the size or value of the lots or sites varied significantly.

61. In some circumstances, you may use a combination of these or other fair and reasonable methods of apportionment. An example of where this may provide a fair and reasonable apportionment is a multi-staged development.

If you adopt a valuation method of apportion a value of the land on which the strata scheme sits then a fair and reasonable result basis to apportion the land value must be used to determine the GST inclusive market value of the unit at the time you acquired the unit from the owners. As there were costs involved in the creation of the lot it would be reasonable that the valuation take into account these costs. Please refer to Market valuation for tax purposes guidelines and GSTR 2006/8 at www.ato.gov.au

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