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Edited version of your private ruling
Authorisation Number: 1012582980630
Ruling
Subject: GST and margin scheme
Question 1
Are you entitled to apply the margin scheme to the sale of subdivided residential allotments?
Answer
Yes, you are entitled to apply the margin scheme to the sale of subdivided residential allotments.
Relevant facts and circumstances
You are registered for goods and services tax (GST) post 1 July 2000.
You acquired a GST-free farm land post 2008 amendment.
The vendor was registered for GST at the time of the purchase. The vendor originally purchased the land pre July 2000.
You rezoned the rural land to residential with a view of developing it into residential land for sale.
It will be a profit making venture and GST will apply to the sale of the subdivided residential allotments.
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(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 Subparagraph 75-5(3)(f)
A New Tax System (Goods and Services Tax) Act 1999 Section 75-11
A New Tax System (Goods and Services Tax) Act 1999 Paragraph 75-11(5)
A New Tax System (Goods and Services Tax) Act 1999 section 195-1
Reasons for decision
Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 ('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.
(* denotes a defined term at section 195-1 of the GST Act).
In this case, you informed us that GST will apply to the sale of the subdivided residential allotments.
The margin scheme is an alternative method by which a supplier is able to calculate the amount of GST payable on a supply of property. Division 75 of the GST Act outlines the margin scheme.
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.
Application of the margin scheme depends on how and when you first purchased your property. Broadly the margin scheme can be used where land was purchased from an entity:
· that was not registered or required to be registered for GST
· that sold you existing residential premises
· that sold the property to you as part of a GST-free going concern, or GST-free farm land
· that sold you the property using the margin scheme.
In this case, you acquired the land as a GST-free farm land post 2008 amendment. However, subsection 75-5(2) of the GST Act provides that you will not be able to apply the margin scheme if you acquired the entire freehold interest through a supply that was ineligible for the margin scheme.
Subparagraph 75-5(3)(f) of the GST Act specifically deals with acquisitions of GST-free farm land that are ineligible for the margin scheme. The subparagraph provides that a supply is ineligible for the margin scheme if:
a) 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;
(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 …
In this case, you informed us that you acquired the farm land from the vendor as a GST-free farm land; the vendor was registered for GST at the time of your acquisition and the vendor acquired the farm land pre July 2000, which means that the vendor's acquisition was not an acquisition of a taxable supply. Therefore, subparagraph 75-5(3)(f) of the GST Act will not apply to you. Accordingly, you will be entitled to apply the margin scheme to the sale of the subdivided residential allotments.
Section 75-11 of the GST Act sets margins for supplies of real property in particular circumstances.
Paragraph 75-11(5) of the GST Act deals with the margin for the supply of real property acquired as a GST-free going concern or as GST-free farmland, as such it is relevant to you.
Where you are in agreement with your customers to use the margin scheme you may use paragraph 75-11(5) of the GST Act to calculate your margin.
Paragraph 75-11(5) of the GST Act states:
(5) If:
(a) you acquired the interest, unit or lease in question from an entity as, or as part of:
(i) a *supply of a going concern to you that was *GST-free under Subdivision 38-J; or
(ii) a supply to you that was GST-free under Subdivision 38-O; and
(b) the entity was *registered or *required to be registered, at the time of the acquisition; and
(c) none of subsections (1) to (4) applies;
the margin for the supply you make is the amount by which the *consideration for the supply exceeds:
(d) if that entity had acquired the interest, unit or lease before 1 July 2000 and on that day was registered or required to be registered:
(i) if you choose to apply an *approved valuation to work out the margin for the supply an approved valuation of the interest, unit or lease as at 1 July 2000; or
(ii) if subparagraph (i) does not apply-the *GST inclusive market value of the interest, unit or lease as at 1 July 2000; or
(e) if that entity had acquired the interest, unit or lease on or after 1 July 2000 and had been registered or required to be registered at the time of the acquisition:
(i) if the entity's acquisition was for consideration and you choose to apply an approved valuation to work out the margin for the supply - an approved valuation of the interest, unit or lease as at the day on which the entity had acquired it; or
(ii) if the entity's acquisition was for consideration and subparagraph (i) does not apply - that consideration; or
(iii) if the entity's acquisition was without consideration - the GST inclusive market value of the interest, unit or lease as at the time of the acquisition; or
(f) if that entity had not been registered or required to be registered at the time of the entity's acquisition of the interest, unit or lease (and paragraph (d) does not apply):
(i) if you choose to apply an approved valuation to work out the margin for the supply an approved valuation of the interest, unit or lease as at the first day on which the entity was registered or required to be registered; or
(ii) if subparagraph (i) does not apply-the GST inclusive market value of the interest, unit or lease as at that day.
In this case, as the vendor acquired the interest in the farm land pre July 2000, we need to determine when did the vendor registers or required to be registered for GST.
If the vendor was registered or required to be registered for GST on 1 July 2000, the margin for your sale is the amount that the payment for your sale exceeds either:
· an approved valuation of the farm land as at 1 July 2000,
· the GST-inclusive market value of the farm land as at 1 July 2000.
If the vendor was not registered or required to be registered for GST on 1 July 2000, the margin for your sale is the amount that the payment for your sale exceeds either:
· an approved valuation of the farm land as at the first day that you were registered or required to be registered for GST,
· the GST-inclusive market value of the farm land as at the first day that you were registered or required to be registered for GST.
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