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Edited version of your written advice
Authorisation Number: 1051378760698
Date of advice: 1 June 2018
Ruling
Subject: GST and the margin scheme
Question
Can the entity apply the margin scheme under Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), for the sale of the Property?
Answer
Yes.
Relevant facts and circumstances
● The entity has an ABN and is registered for the goods and services tax (GST).
● The entity purchased Property under a Contract for Sale (Contract).
● The Property was vacant land.
● The sale price of the Property was stated in the Contract.
● The entity acquired title to the Property from the Vendor after 2016.
● At the time of the purchase, both the entity and the Vendor were registered for GST and were members of the same GST Religious Group and the sale of the Property was treated as if it was not a taxable supply between the parties, pursuant to section 49-30 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
● At the time of the purchase, both the entity and the Vendor were also members of the same GST Group under Division 48 of the GST Act.
● For the entire period of their ownership, the Vendor would have been eligible to apply the margin scheme on the sale of the Property.
● Vendor acquired the land prior to 1 July 2000.
● The entity has developed the Property by the construction of a dwelling. The newly developed Property constitutes ‘new residential premises’ within the meaning of section 40-75 of the GST Act.
● The entity intends to sell the newly developed Property under the margin scheme.
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 40-75
A New Tax System (Goods and Services Tax) Act 1999 Division 48
A New Tax System (Goods and Services Tax) Act 1999 section 49-10
A New Tax System (Goods and Services Tax) Act 1999 section 49-30
A New Tax System (Goods and Services Tax) Act 1999 section 75-5
A New Tax System (Goods and Services Tax) Act 1999 section 75-11
Reasons for decision
In this ruling,
● unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)
● unless otherwise specified, any reference to a taxable supply assumes that all of the requirements of section 9-5 are met
● all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website www.ato.gov.au
Detailed reasoning
Section 75-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you can use the margin scheme to bring within the GST system your taxable supplies of freehold interests in land.
Subsection 75-5(1) provides that the margin scheme applies in working out the GST amount on a taxable supply of real property, provided you obtain an agreement in writing with the recipient of the supply that the margin scheme will apply.
However, subsection 75-5(2) provides that you cannot use the margin scheme if you acquired the interest through a supply that was ineligible for the margin scheme.
Subsection 75-5(3) defines which supplies are ineligible for the margin scheme. Of relevance here, are paragraph 75-5(3)(a) and paragraph 75-5(3)(c).
Paragraph 75-5(3)(a) provides that a supply is ineligible for the margin scheme if it is a taxable supply on which the GST was worked out without applying the margin scheme.
Paragraph 75-5(3)(c) provides that a supply is ineligible for the margin scheme if it is a supply of real property and all of the following apply:
● at the time you acquired the real property you were a member of a GST group;
● the entity from whom you acquired it was a member of the GST group at that time;
● the entity had acquired it from an entity that was not a member of the GST group; and
● this earlier supply was not eligible for the margin scheme because of the operation of subsection 75-5(2).
You cannot use the margin scheme to sell a property if you obtained the property from a fellow member of a GST group who was not eligible to use the margin scheme and who had purchased it from an entity that was not a member of the GST group. You need to determine the previous owner’s eligibility to use the margin scheme if you purchase property from a fellow member of a registered GST group.
Based on the facts, the sale of the Property by the entity is not ineligible for the margin scheme under paragraph 75-5(3)(c).
The sale of the developed Property would be a sale of new residential premises and would be a taxable supply. The entity can apply the margin scheme under Division 75 for the sale of the Property provided that, on or before the making of the supply, the entity and the recipient of the supply have agreed in writing that the margin scheme will apply to the sale.
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