Edited version of your private ruling

Authorisation Number: 1012565524770

Ruling

Subject: Goods and services tax and the margin scheme

Question 1

Is Entity A (in Liquidation) (Receiver and Manager appointed) entitled to apply the margin scheme under Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to its proposed supply of new residential premises?

Answer

Yes, Entity A is entitled to apply the margin scheme under Division 75 of the GST Act to its proposed supply of the new residential premises.

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.

Entity A is registered for GST.

Any action referred to in this ruling that is undertaken by the trustee is undertaken in its capacity as the trustee of the relevant trust.

Certain individuals were appointed as Receiver and Manger of Entity A. The ABN of the Receiver and Manager in that capacity is the same as that of Entity A.

Entity A is the fee simple owner of property comprising of new residential premises being premises which have not previously been sold as residential premises or subject to a long term lease.

Some of the new residential premises had been sold by Entity A prior to the appointment of the Receiver and Manager. At the time of the appointment of the Receiver and Manager, a number of new residential premises remained unsold.

A history of the property is listed in chronological order below.

The land on which the Resort is located was originally State land (not fee simple). The State granted Entity B a permit to occupy this land.

Subsequently, the land covered by the permit to occupy was converted to freehold land. Entity B became the fee simple owner of this freehold land. At the time of conversion to freehold land, the land was comprised of Lot 1 and Lot 2 on Survey Plan X.

Following the conversion to freehold land, Entity B began the process of creating the community title scheme and subsequently entered into contracts for the sale of proposed lots. Entity B applied the margin scheme to the sale of these lots.

Entity B sold the land described as Lots 1 and Lots 2 on Survey Plan X to Entity C. The Sale Contract contained a clause which required Entity B to elect to apply the margin scheme to the supply of the new residential premises.

The land was developed and lots created from the development were sold. The Receiver and Manager have obtained a copy of a sale contract entered into by Entity C requiring the parties involved to agree to the application of the margin scheme to the sale.

Subsequently, Entity C transferred the land to Entity A in its capacity as trustee for the trust. Under this transfer, Entity A replaced Entity C as trustee for the trust. There was no monetary consideration paid for this transfer as the transfer was to give effect to a change of trustee only.

The representative of Entity A acknowledged that there were discrepancies in the facts as they appeared on the Sale Contract and the transfer documents.

Given these discrepancies, the representative confirmed that this ruling is to be issued on the following basis:

1. The relevant sale of land was from Entity B to Entity C is in accordance with the terms of the Sale Contract and that Entity C was acting in its capacity as Trustee for the trust.

2. The property referred to as "Lot 1 and Lot 2 on SP X" in the Sale Contract is the same as "Lot 1 on SP Y" on transfer document TD 1 and "Lot 2 on SP Z " on transfer document TD 2.

3. This ruling does not verify the correctness or otherwise of points 1 and 2 above.

Entity A took over as developer of the land which resulted in the development of new residential premises in the Resort. Some of these premises were sold prior to the appointment of the Receiver and Manager. The proposed sale of the remaining new residential premises will be subject to sale contracts in which Entity A and the purchasers will agree to apply the margin scheme to the sales.

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 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 Division 38

A New Tax System (Goods and Services Tax) Act 1999 Division 40

A New Tax System (Goods and Services Tax) Act 1999 Division 75

Reasons for decision

Section 58-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides the general principle for the relationship between incapacitated entities and their representatives. It sates:

Subject to this Division, any supply, acquisition or importation by an entity in the capacity of a *representative of another entity that is an *incapacitated entity is taken to be a supply, acquisition or importation by the other entity.

(terms marked with an asterisk (*) are defined in the GST Act)

Therefore, any supply, acquisition or importation by the Receiver and Manager in its capacity of the representative of Entity A is taken to be a supply, acquisition or importation by Entity A.

Section 9-40 of the GST Act provides that GST is payable on any taxable supply that an entity makes.

Section 9-5 of the GST Act defines 'taxable supply'. It states:

You make a taxable supply if: 

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

(b)   you make the supply in the course 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 for GST.

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

On the facts provided, the supply of the new residential premises by Entity A will be made for consideration and in the course of furtherance of its enterprise. The supply is connected with Australia and Entity A is registered for GST. The supply is not GST-free under Division 38 of the GST Act or input taxed under Division 40 of the GST Act. As the supply of the new residential premises satisfies the requirements of section 9-5 of the GST Act, the sales of the new residential premises are taxable supplies on which GST is payable.

Division 75 of the GST Act allows the use of the margin scheme to calculate the GST payable on supplies of real property if certain requirements are satisfied.

In particular, subsection 75-5(1) of the GST Act states:

(1) 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.

Subsection 75-5(1A) of the GST Act provides that the agreement in writing must be made on or before making the supply or within such further period as the Commissioner allows.

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

Subsection 75-5(3) of the GST Act lists the various supplies that are ineligible for the margin scheme.

The sale of the new residential premises by Entity A will be made subject to Entity A agreeing in writing with the purchasers, prior to the settlement date, to sell the premises under the margin scheme. It follows that the supply of the new residential premises will meet the requirements of subsection 75-5(1) and subsection 75-5(1A) of the GST Act.

What remains to be determined is the application of subsection 75-5(2) and subsection 75-5(3) to the supply of the 50 new residential premises.

Relevantly, subsection 75-5(3) of the GST Act 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)………..

(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 circumstances described in paragraphs 75-5(3)(b) to 75-5(3)(g) of the GST Act do not apply to Entity A. Therefore whether Entity A can use the margin scheme will depend on how and when the property was first purchased.

An Entity can use the margin scheme if it purchased the property before 1 July 2000 (the start of GST) or if it is purchased after 1 July 2000 from someone:

· that was not registered or required to be registered for GST

· who sold you existing residential premises

· who sold the property to you as part of a GST-free going concern, or

· who sold the property using the margin scheme.

An Entity cannot use the margin scheme if when it first purchased the property, the sale to the Entity was fully taxable and the margin scheme was not used.

The Sale Contract between Entity B and Entity C was made on the basis that the margin scheme was to apply to the sale of the property. As the Sale Contract was signed by both parties, it would constitute an agreement in writing between the two parties for the margin scheme to apply to the sale of the property. Based on this, Entity C cannot claim any input tax credits in relation to its acquisition of the property.

The transfer of the property which occurred from Entity C to Entity A was made for no consideration and was merely a change of trustee and therefore does not constitute a supply for GST purposes. Accordingly, that transfer of the property has no relevance for margin scheme purposes.

Given the above, Entity A will meet the requirements of Section 75-5 of the GST Act and therefore will be eligible for the application of the margin scheme to its sales of the new residential premises. The margin is to be calculated in accordance with section 75-10 of the GST Act.

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