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Edited version of your written advice
Authorisation Number: 1012977316248
Date of advice: 26 February 2016
Ruling
Subject: GST and the margin scheme
Question
Can the trustee of the trust use the margin scheme under section 75-5 of the A New Tax System (Goods and Services Tax) Act 1999 when working out the GST payable on sales of properties being developed?
Answer
Yes, the trustee of the trust can use the margin scheme.
Relevant facts and circumstances
The trust has been established to undertake a property development.
The trustee of the trust is owned equally between Company A and Company B.
The trust will purchase the property for market value through a GST-free supply of a going concern from Company C. Company C purchased the property through a GST-free supply.
Company C and Company A are related entities.
The property will be developed into new residential apartments and some minor retail / commercial premises. The development will be managed by Company A under a development management agreement entered into with the trustee of the trust.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 Division 75
A New Tax System (Goods and Services Tax) Act 1999 Division 165
Reasons for decision
Division 165 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Division 165 of the GST Act applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.
We have not fully considered the application of Division 165 of the GST Act to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.
If you want us to rule on whether Division 165 of the GST Act applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Division 165 of the GST Act may apply.
An entity is entitled to use the margin scheme to calculate the amount of GST on the taxable supply of real property under section 75-5 of the GST Act where:
• the supply is made by:
• selling a freehold interest in land; or
• selling a stratum unit; or
• granting or selling a long-term lease; and
• the supplier and the purchaser agree in writing that the margin scheme is to apply; and
• the real property was not acquired through a supply that was 'ineligible for the margin scheme'.
Subsection 75-5(3) of the GST Act provides a list of circumstances in which an entity is ineligible to use the margin scheme. Paragraph 75-5(3)(e) states:
(3) A supply is ineligible for the margin scheme if:
…
(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 on which the GST was worked out without applying the margin scheme; or View history reference
The trust will acquire the property from Company A as part of a GST-free supply of a going concern under section 38-325 (Subdivision 38-J) of the GST Act. However, Company A did not acquire the property through a taxable suppl. It was also acquired through a GST-free supply of a going concern. Therefore, paragraph 75-5(3)(e) does not apply.
Paragraph 75-5(3)(g) states:
(3) A supply is ineligible for the margin scheme if:
…
(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.
Although the trust will acquire the property from Company A which is an associate, the acquisition is for consideration that is of market value and therefore, paragraph 75-5(3)(g) does not apply.
As none of the exclusions in subsection 75-5(3) of the GST Act apply, the trust is able to use the margin scheme to work out the GST payable on sales of the developed property.
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