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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of private advice

Authorisation Number: 1051558572896

Date of advice: 9 August 2019

Ruling

Subject: GST and the margin scheme

Questions

1. Should the valuation method be used to determine the margin for the purpose of applying the margin scheme in Division 75 of the GST Act in relation to the sale of the Unit?

2. If the valuation method should be used to determine the margin, what is the date of an approved valuation?

3. How should the margin be calculated?

Answer

1. Yes.

2. Date when the supplier became registered for GST.

3. The margin on the sale of the Unit should be the difference between the sale price of the Unit and a reasonable apportionment of the valuation of the Property at the valuation date which is attributable to the Unit sold.

This ruling applies for the specified period.

The scheme commences on the specified date.

Relevant facts and circumstances

·         The supplier (you) purchased a Property prior to 1 July 2000 for the specified consideration.

·         The Property comprised shops and residences on one title at settlement.

·         You have leased the Property to a number of tenants.

·         You did not become registered or required to be registered for GST until after 1 July 2000.

·         You received notification from the Council advising a possible change in the zoning policy for the Property. You took advantage of this opportunity to improve the value of the Property and initiated the redevelopment of the Property, given that the Property was in a bad state needing repairs and it was more commercially viable following the rezoning.

·         You entered into an Agreement with a Developer to develop the Property to build a number of units.

·         The development and construction costs were funded by various sources.

·         You took out home warranty insurance in respect of the development project.

·         The construction of the units has completed. They have been strata titled. Occupation certificates for these units have been obtained from the local council.

·         You have sold one of the units (Unit) to a related party and have rented out all the other units.

·         You were registered for GST at the time of settlement of the sale of the Unit.

·         The sale of the Unit was treated as a taxable supply of new residential premises and the margin scheme was applied to the sale.

·         All the requirements under subsection 75-5(1) have been met at settlement for the margin scheme to apply to the sale of the Unit.

·         The sale of the unit by you is not ineligible for 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 75-10

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

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

A New Tax System (Goods and Services Tax) Act 1999 paragraph 75-10(3)(b)

A New Tax System (Goods and Services Tax) Act 1999 section 75-11

A New Tax System (Goods and Services Tax) Act 1999 subsection 75-11(3)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 75-11(3)(e)

A New Tax System (Goods and Services Tax) Act 1999 subsection 75-11(4)

A New Tax System (Goods and Services Tax) Act 1999 subsection 75-11(6)

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision

In this reasoning,

·         unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

·         asterisked terms are defined in section 195-1

·         unless otherwise specified, any reference to a taxable supply assumes that all of the requirements of section 9-5 are met

GST and the margin scheme

Section 75-10

Under the margin scheme, GST is calculated as 1/11 of the margin for the supply.

Subsection 75-10(2) provides that, subject to subsection (3) and section 75-11, the margin for the supply is the amount by which the consideration for the supply exceeds the consideration for your acquisition of the interest, unit or lease in question.

Further, subsection 75-10(3) of the GST Act provides that, subject to section 75-11, if:

(a) the circumstances specified in an item in the second column of the table in this subsection apply to the supply; and

(b) an *approved valuation of the freehold interest, *stratum unit or *long-term lease, as at the day specified in the corresponding item in the third column of the table, has been made;

the margin for the supply is the amount by which the *consideration for the supply exceeds that valuation of the interest, unit or lease.

Use of valuations to work out margins

Valuations are required to work out the margin for supplies of real property under paragraph 75-10(3)(b) and in particular circumstances, under section 75-11.

The table in paragraph 75-10(3)(b) sets out the valuation dates for the purposes of these provisions. A valuation must be made as at the date specified in column 3 of the table and must comply with all the requirements determined in writing by the Commissioner.

The date when the valuation of the interest must be made will depend on which item in the table in subsection 75-10(3) applies.

To work out the margin for the supply of real property, you require a valuation as at the valuation date. The valuation process itself does not have to be undertaken on that date.

Section 75-11

Section 75-11 provides the methods for calculating the margins for supplies of real property in particular circumstances.

Application to the facts

·         Section 75-11 does not apply.

·         A valuation of the interest acquired before 1 July 2000 would be required.

·         A valuation under Item 2 would be applicable, and a valuation of the Property as at the date of effect of your registration should be obtained.

·         The valuation of the Property should be apportioned to ascertain the part of the valuation that relates to the Unit.

·         You may use any fair and reasonable method of apportionment to ascertain the proportion of the valuation that relates to the Unit sold.

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