Edited version of your written advice

Authorisation Number: 1051440198344

Date of advice: 18 October 2018

Ruling

Subject: Margin scheme

Question 1

Will you be eligible to apply the margin scheme to future sales from lots subdivided from the properties you are acquiring as input tax supplies and going concern?

Answer

Yes. You will be eligible to apply the margin scheme to future sales from lots subdivided from the properties.

Question 2

Is the margin scheme ‘cost base’ for future sales from lots subdivided from the relevant parcels of land the purchase price for the input taxed acquisition and the purchase price for the acquisition of the GST-free going concern of the properties.

Answer

Yes. The margin scheme ‘cost base’ for future sales from lots subdivided from the relevant parcels of land is the purchase price for the input taxed acquisition and the purchase price paid by the vendor of the GST-free going concern of the property.

Relevant facts and circumstances

You are purchasing numerous properties as input tax supplies and GST-free going concern.

The properties are described as follows:

● residential premises as defined for GST purposes;

● typical residential objectively suitable for and capable of being occupied as a residence or for residential accommodation;

● are not commercial residential premises – the buildings do not fit within any of the definition of “commercial premises” under section 195-1; and

● not new residential premises - the buildings have been used for residential accommodation since before 2 December 1998 and have previously been sold (in 20XX);

● have not previously been the subject of a long term lease by virtue of the fact that the property is residential premises where the maximum lease term is 12 months;

● have not been substantially renovated within the last five years;

● have not been built or contain a building that has been built to replace demolished premises on the same land. The building on the property is the original dwellings constructed in the 1970’s/80’s.

One of the properties is a commercial property under a commercial lease agreement. This property will be sold as a going concern with the lease agreement in place.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsections 40-65(1) & (2)

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-75(1)

A New Tax System (Goods and Services Tax) Act 1999 subsections 38-325(1) & (2)

A New Tax System (Goods and Services Tax) Act 1999 subsections 75-5(1); (2) & (3)

A New Tax System (Goods and Services Tax) Act 1999 subsection 75-10(1); (2) & (3)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 75-11 (5) (e)

A New Tax System (Goods and Services Tax) Act 1999 section 75-15

Reasons for decision

Question 1

In this case the premises are not considered to be new residential premises and the supply of the properties situated at xxx and xxx Road will be input taxed.

Furthermore, the commercial property will be sold as a going concern with the lease agreement in place.

Subsection 75-5(2) of the GST Act provides that the margin scheme does not apply if an entity acquired the entire freehold interest in property through a supply that was ineligible for the margin scheme.

Subsection 75-5(3) of the GST Act refers to supplies ineligible for the margin scheme. None of the conditions under subsection 75-5(3) applies in this case.

Other than satisfying the requirement of the written agreement, to apply the margin scheme an entity must be making a taxable supply by:

● selling a freehold interest in land;

● selling a stratum unit; or

● supplying a long term lease.

However, an entity will not be able to use the margin scheme if it is selling real property that it acquired through a taxable sale on which the margin scheme was not used.

In this case you did not acquire the properties through taxable supplies on which the GST was worked out without applying the margin scheme.

Therefore, you can use the margin scheme when you sell the subdivided land.

Question 2

Cost base for the properties situated at xxx

Subsection 75-10(1) of the GST Act provides that the amount of GST on a taxable supply of real property (that is, sale of a freehold interest in land, sale of a stratum unit, or grant or sale of a long term lease) under the margin scheme is 1/11th of the margin for the supply.

The margin for a supply of real property is determined in accordance with subsection 75-10(2) of the GST Act unless subsection 75-10(3) or section 75-11 of the GST Act applies. In this case, neither subsection 75-10(3) nor section 75-11 of the GST Act apply to the properties situated at xxx.

Therefore, the margin for the supply is the amount by which the consideration for the supply exceeds the consideration for the acquisition of the interest. This means that your cost base is the consideration paid for your acquisitions.

Paragraph 75-11(5) (e) of the GST Act provides that if you acquired an interest as part of a supply of a going concern from an entity and if that entity has acquired the interest on or after 1 July 2000 and the entity’s acquisition was for consideration and no approved valuation will be undertaken then the cost base for the supply is the purchase price paid by the entity.

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