Edited version of your private ruling

Authorisation Number: 1012446022600

Ruling

Subject: Goods and services tax (GST) and the margin scheme

Question

Can you use the margin scheme to calculate GST on your sale of the townhouses that you are developing on the development site?

Answer

Yes, provided that you and the purchasers agree in writing that the margin scheme is to be used to calculate GST on the sales of the townhouses. These written agreements would need to be entered into by the time of settlement or within such further period as the Commissioner allows.

Relevant facts and circumstances

You are registered for GST.

You purchased a property located in Australia (the development site). Settlement was on a certain date.

You purchased the development site from individuals. The sale of the development site to you was a private sale. This sale was not a taxable supply.

There was a house on the property when you purchased it.

You will develop the property into townhouses and sell them on completion.

You and the individuals who sold the development site to you were not members of the same GST group when you purchased the development site.

You did not purchase the development site from a joint venture operator of a GST joint venture at a time when you were a participant in the joint venture.

You are not an associate of the individuals who sold the development site to you.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 section 40-65

A New Tax System (Goods and Services Tax) Act 1999 section 40-75

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(1A)

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)

Reasons for decision

Summary

You can use the margin scheme to calculate GST on your sales of the townhouses, because:

· you will make taxable supplies of real property

· you will make these supplies by selling freehold interests in land

· you did not acquire the freehold interests through a supply that was ineligible for the margin scheme.

In order to use the margin scheme, you and the purchasers of the townhouses must agree in writing that the margin scheme is to apply by the time of sale (settlement) or within such further period as the Commissioner allows.

Detailed reasoning

An entity can use the margin scheme if it satisfies the requirements of section 75-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

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:

(a) selling a freehold interest in land; or

(b) selling a *stratum unit; or

(c) 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.

You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which 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.

(*Denotes a term defined in section 195-1 of the GST Act)

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

The agreement must be made:

(a) on or before the making of the supply; or

(b) within such further period as the Commissioner allows.

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 when a supply is ineligible for the margin scheme. It states:

A supply is ineligible for the margin scheme if

(a) it is a *taxable supply on which the GST was worked out

without applying the *margin scheme; or

(b) it is a supply of a thing you acquired by *inheriting it from a

deceased person, and the deceased person had acquired all of

it through a supply that was ineligible for the margin scheme;

or

(c) it is a supply in relation to which all of the following apply:

(i) you were a *member of a *GST group at the time you

acquired the interest, unit or lease in question;

(ii) the entity from whom you acquired it was a member of

the GST group at that time;

(iii) the last supply of the interest, unit or lease by an entity

who was not (at the time of that supply) a member of the

GST group to an entity who was (at that time) such a

member was a supply that was ineligible for the margin

scheme; or

(d) it is a supply in relation to which both of the following apply:

(i) you acquired the interest, unit or lease from the *joint

venture operator of a *GST joint venture at a time when

you were a *participant in the joint venture;

(ii) the joint venture operator had acquired the interest, unit

or lease through a supply that was ineligible for the

margin scheme; or

(e) it is a supply in relation to which all of the following apply:

(i) you acquired the interest, unit or lease from an entity as,

or as part of, a *supply of a going concern to you that

was *GST-free under Subdivision 38-J

(ii) the entity was *registered or *required to be registered,

at the time of the acquisition;

(iii) the entity had acquired the entire interest, unit or lease

through a taxable supply of which the GST was worked out without applying the margin scheme; or

(f) it is a supply in relation to which all of the following apply;

(i) you acquired the interest, unit or lease from an entity as,

or as part of, a supply to you that was GST-free under

Subdivision 38-O; or

(ii) the entity was registered or required to be registered, at

the time of the acquisition;

(iii) the entity had acquired the entire interest, unit or lease

through a taxable supply on which the GST was worked

out without applying the margin scheme; or

(g) it is a supply in relation to which all of the following apply:

(i) you acquired the interest, unit or lease from an entity

who was your *associate, and who was registered or

required to be registered, at the time of the acquisition;

(ii) the acquisition from your associate was without

*consideration;

(iii) the supply by your associate was not a taxable supply;

(iv) your associate made the supply in the course or

furtherance of an *enterprise that your associate *carried

on;

(v) your associate had acquired the entire interest, unit or

lease through a taxable supply on which the GST was

worked out without applying the margin scheme.

You will satisfy the requirements of paragraph 9-5(a) to 9-5(d) of the GST Act. This is because:

· you will supply properties for consideration

· these supplies will be made in the course or furtherance of the property development enterprise that you carry on.

· these supplies will be connected with Australia, because the properties will be located in Australia, and

· you are registered for GST.

There are no provisions in the GST Act under which your sale of the townhouses will be GST-free.

These sales will not be input taxed sales of residential premises under section 40-65 of the GST Act, because they will be sales of new residential premises other than new residential premises used for residential accommodation before 2 December 1998.

There are no other provisions of the GST Act under which your sales of the properties will be input taxed.

Therefore, as all of the requirements of section 9-5 of the GST Act will be satisfied, you will make taxable supplies of the townhouses.

You will sell freehold interests in land.

You did not acquire the freehold interests in land through a supply that was ineligible for the margin scheme.

Therefore, you can use the margin scheme to calculate GST on your sales of the townhouses, provided that you and the purchasers agree in writing that the margin scheme is to apply. This written agreement must be entered into by the time of sale (settlement) or within such further period as the Commissioner allows.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).