Edited version of private advice

Authorisation Number: 4140088093159

Date of advice: 12 November 2020

Ruling

Subject: GST and margin scheme

Question 1

Will the supply of the "Margin Scheme Land" by you to xx be a taxable supply for which GST can be calculated using the margin scheme pursuant to section 75-5 of the (Goods and Services Tax) Act 1999 ("GST Act")?

Answer

Yes - the supply of the margin scheme land is a taxable supply as you satisfy all the requirements listed in section 9-5 of the GST Act and meets the requirements of section 75-5 of the GST Act to calculate the GST using the margin scheme.

Question 2

If the GST Margin Scheme can be used, under what provision of the GST Act must the margin be calculated?

Answer

The margin scheme land is a taxable supply, section 75-11(5)(d) of the GST Act is the provision relevant to calculate the margin for the supply.

This ruling applies for the following period:

1 July 20xx - 30 June 20xx

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

1.    As per your ANZSIC code, you are in the main grocery supermarket operation industry.

2.    You have been registered for GST since December 20xx.

3.    On xx 20xx, you entered into a contract of sale with xx where you have agreed to sell, and xx agreed to buy the "Property". The executed copy of the contract for sale has been provided with the application for the ruling.

4.    The "Property" is made up of the following:

•         The whole of the land located at xx;

•         The whole of the land located at xx;

•         The building or buildings erected on the Land and being on the Land as at Contract Date;

•         All the chattels, fixtures, fittings, plant and equipment on the Property at Completion except for any Exclusions.

5.    The exclusions are any chattel, fixture, fittings, furnishing, plant or equipment which are not owned by you, or noted in the Contract as an exclusion.

6.    The Contract relevantly provides as follows:

•         Clause xx states that the parties agree that you will not apply the margin scheme in working out the amount of GST on the supply of the land comprised and described in the following certificates of title:

a)    Volume xx Folio xx; and

b)    Volume xx Folio xx,

(which together forms the Non-Margin Scheme Land).

•         Clause xx of the Contract states that the parties agree that the margin scheme is available and can be applied in working out the amount of GST on the supply of the land comprised and described in the following certificates of title:

a)    Volume xx Folio xx;

b)    Volume xx Folio xx;

c)    Volume xx Folio xx; and

d)    Volume xx Folio xx.

(which together forms the Margin Scheme Land).

7.    xx has been registered for GST since July 20xx.

8.    xx has agreed to buy your rights, title and interest in the "Property" for $xx exclusive of GST.

9.    The contract has a completion date of xx.

10.  Clause xx on the contract of sale states that the apportionment of the purchase price for supply of the Property between Margin scheme Land and Non-Margin scheme is as follows:

•         $xx for the Margin scheme Land; and

•         $xx for the Non-margin scheme Land.

11.  You acquired the xx as a taxable supply on which GST was worked out without using the margin scheme. This forms a part of the Non-Margin Scheme Land.

12.  The xx is made up of x separate lots and were acquired by you as a GST-free supply of a going concern from the following entities who are each registered or required to be registered for GST. The entities acquired each of the lots as outlined below:

•         Volume xx Folio xx (Lot 1): Company A in 19xx.

•         Volume xx Folio xx (Lot 2): Transfer of land in 20xx from the old trustee to the new trustee which is Company B. Land was initially acquired via the old trustee in 19xx.

•         Volume xx Folio xx (Lot 3): Company C in 19xx.

•         Volume xx Folio xx (Lot 4): Company D in 19xx.

•         Volume xx Folio xx (Lot 5): Company E, Company F, Company G and Company H in 20xx.

13.  Lots x to x forms the Margin scheme Land.

14.  Lots x to x forms part of the Non-Margin Scheme Land as the previous owners of it as identified above acquired it through a taxable supply on which GST was worked out without applying the margin scheme.

15.  Your tax representative confirmed that the facts listed from number 1 - 14 are accurate.

Reasons for Decision

Summary

Section 9-5 of the GST Act states that you make a taxable supply if (a) you make a supply for consideration and (b) it is in the course or furtherance of an enterprise that you carry on and (c) the supply is connected with the indirect tax zone (Australia) and (d) you are registered or required to be registered. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

In your case, you have satisfied all the elements listed above, therefore the sale of the margin scheme land which consists of the x lots will be considered as a taxable supply.

As it is considered a taxable supply, the margin scheme will apply to the sale on the margin scheme land if you and SA have agreed in writing that the margin scheme is to apply. Please note that the agreement must be made on or before the making of the supply (typically settlement date) or within such further period as the Commissioner determines. For the purposes of this ruling, we have assumed that you will satisfy this criterion as per outlined in the contract.

Subsection 75-10(1) of the GST Act states that if a taxable supply of real property is under the margin scheme the amount of GST on the supply is 1/11th of the margin, which is the amount by which the consideration for the supply exceeds the consideration for the acquisition of the interest, unit or lease; unless subsection 75-10(3) or section 75-11 applies.

There are special rules that apply to the calculation on supplies of real property involving GST Groups; GST joint ventures; property inherited from deceased estates; supplies made by governments; supplies from or to associates; and supplies where the property was acquired through a GST-free supply (as a going concern or as farm land).

As the x lots was acquired by you as a GST free going concern and acquired by the vendors prior to 1 July 2000, the relevant provisions at which the margin should be calculated would be as per Section 75-11(5)(d) of the GST Act.

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