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Edited version of your written advice
Authorisation Number: 1013021260694
Date of advice: 24 May 2016
Ruling
Subject: Application of margin scheme to the sale of stratum units that are new residential premises
Question
Can you apply the margin scheme to sales of stratum units, which are new residential premises, located in Australia?
Answer
Yes, when you sell stratum units located in Australia, you will be able to apply the margin scheme provided that:
• on or before the making of the supply, you and the purchaser have agreed in writing that the margin scheme is to apply; and
• the stratum units have not ceased to be new residential premises.
Under section 75-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), the margin scheme can be applied to a taxable supply of a stratum unit where certain conditions are satisfied. One of the requirements under section 75-5 of the GST Act is that the supplier and the recipient of the supply have agreed in writing that the margin scheme is to be applied to the supply.
Is the supply of the stratum units a taxable supply?
By selling the stratum units you will be making taxable supplies of real property because:
• you make the supplies of stratum units for consideration,
• the supplies of stratum units are made in the course of a property development enterprise that you are carrying on,
• the supplies are connected with the indirect tax zone under subsection 9-25(4) of the GST Act because the stratum units are real property in Australia,
• you are registered for GST, and
• the supplies of stratum units are not GST-free or input taxed (note: the supply will be an input taxed supply if the stratum units have ceased to be new residential premises at the time of sale).
Accordingly, provided that:
• you and the purchasers of the stratum units have a written agreement on or before the sale of the property for the margin scheme to apply; and
• at the time of sale, the stratum units have not ceased to be new residential premises,
the margin scheme may be applied in working out the amount of GST on the taxable supply of the stratum units.
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 have been registered for GST for a few years.
• You have not been part of a GST Group or GST Joint Venture.
• You acquired a property in Australia (property) for a particular sum.
• The contract of sale indicates that the property was residential premises when acquired as it was subject to a Residential Tenancy Agreement at the date of the contract.
• The supply of the property to you was not a taxable supply because it was input taxed as a sale of residential premises that were not commercial premises or new residential premises.
• You are in the process of developing the property by demolishing the existing dwelling, building a number of stratum units on the property and subdividing the property so that each stratum unit is on its own lot.
• You intend to sell the stratum units shortly after completion of construction.
Relevant legislative provisions
A New System of Taxation (Goods and Services) Act 1999 (GST Act)
• section 40-65
• section 75-5
• subsection 9-25(4)
• paragraph 40-35(1)(a)
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