Edited version of private ruling

Authorisation Number: 1011715473845

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fac sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: GST and the margin scheme

Question 1

Are you, in your capacity as Receiver and Manager, entitled to apply the margin scheme when you sell the Property?

Answer

Yes, provided your supply is not ineligible for the application of Division 75 of the GST Act.

Question 2

Which method of apportionment of the acquisition price should you use when calculating the GST applicable to each sale under the margin scheme?

Answer

Where your supply is not ineligible for the application of the margin scheme, you can apportion the acquisition price by any method that is fair and reasonable.

Relevant facts and circumstances

The Mortgagee appointed you and your partner as Joint and Several Receivers and Managers of the various lots on the property. Subsequently, the mortgagee appointed you and your partner, Joint and Several Receivers and Managers of another lot on the property. Both appointments were made pursuant to the powers contained in a Registered Mortgage.

You are registered for GST.

The Property is made up of residential apartments that have a strata plan registered and comprises a modern architect designed, multiple storey apartment building consisting of different sized bedrooms and so on. Secured basement car parking (over 2 levels) is provided, including a few visitor car spaces

Based on information from the company website you provided, each lot is sold with an entitlement to a specific car space lot and the area is included in the title to the apartment.

You advised that there is a significant variation in the price of the apartments due to size and views available. When you sell the apartments, you intend to apply the margin scheme in calculating your GST liability and seek advice on which method of apportionment to apply.

The debtor/mortgagor as developer sold a small number of apartments (X) prior to your appointment as Receivers and Managers.

Based on initial information you have obtained, you have assumed that the debtor applied the margin scheme in calculating the GST liability in relation to the sale of the X apartments. You are awaiting documentation to confirm that the debtor was entitled to apply the margin scheme in relation to those X apartments.

You advised that you are not aware, at this time, of the method used by the debtor to apportion the acquisition cost of the original properties for the purpose of applying the margin scheme in calculating the GST applicable on the sale of the X apartments.

The debtor acquired the property post 1 July 2000.

You are not sure whether the debtor has attributed the GST on the sales made by them.

Reasons for decision

Division 58 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) deals with representatives of incapacitated entities. The terms 'representative' and 'incapacitated entity' are both defined in section 195-1 of the GST Act. In general, they refer to insolvency practitioners such as liquidators, receivers and administrators, and the entity they are appointed over.

You were appointed the Receiver and Manager. The sale of the Property will occur during your term and within the scope of your responsibility or authority for managing the incapacitated entity's affairs as the Receiver and Manager.

Therefore, in accordance with subsection 58-10(1) of the GST Act, you (and not the incapacitated entity) are liable for or entitled to the GST consequences that arise from a supply, acquisition or importation or related acts or omissions during your term of appointment.

In light of the provisions of Division 58, the incapacitated entity is taken to be making the supply. As a result, for the purpose of the representative applying the margin scheme to the sale, the word 'you' as used in Division 75 is taken to mean the incapacitated entity.

If all the requirements for applying the margin scheme under Division 75 of the GST Act are satisfied when the incapacitated entity is taken to make the supply, the representative of the incapacitated entity may apply the margin scheme in respect of the sale.

However, the representative of the incapacitated entity is liable for the GST calculated under the margin scheme.

Eligibility to apply the margin scheme

Subsection 75-5(1) of the GST Act states that the margin scheme applies in working out the amount of GST on a taxable supply of real property that you make by selling a freehold interest in land where you and the recipient of the supply have agreed in writing that the margin scheme is to apply. However, under subsection 75-5(2) of the GST Act the margin scheme cannot be used if the property was acquired through a supply that was ineligible. Subsection 75-5(3) of the GST Act defines what is an ineligible supply. For example, a property acquired as a taxable supply without applying the margin scheme would be an ineligible supply.

You will need to satisfy yourself, that the property on which the apartment lots have been constructed was not acquired by the mortgagor through a supply that was ineligible for the margin scheme under subsection 75-5(2) of the GST Act. That being the case, the mortgagor would have been eligible to use the margin scheme on the sale of the apartment lots if it had made the supply.

The application of the margin scheme by a representative exercising power of sale is based on the assumption that for all intents and purposes the representative stands in the shoes of the mortgagor when the supply is made. Consequently, if the mortgagor was able to apply the margin scheme, you as representative may also, in agreement with the purchasers, apply the margin scheme in respect of the sales.

Calculation of GST on a supply under the margin scheme

The amount of GST you must normally pay on a property sale is equal to one-eleventh of the total sale price. The margin scheme is a GST concession to be used to calculate the amount of GST payable on the supply of real property.

As explained at paragraph 45 of Goods and Services Tax Ruling GSTR 2006/8 the margin scheme for supplies of real property acquired on or after 1 July 2000 (GSTR 2006/8), the margin is the amount by which the consideration for the supply exceeds the consideration for the acquisition of the real property.

Paragraph 48 of GSTR 2006/8 explains, amongst other things, that consideration for the acquisition of the real property is the original purchase price after taking into account settlement adjustments. In the case of subdivided land or stratum unit, the effect of section 75-15 of the GST Act is that the consideration for the acquisition is the corresponding proportion of the consideration for the real property that you acquired.

The consideration for the acquisition does not include costs incurred in developing the real property, prior to or after its acquisition.

Furthermore, paragraph 58 of GSTR 2006/8 states that to ascertain the proportion of the purchase price that relates to the subdivided allotment or stratum unit, you may use any fair and reasonable method of apportionment. The method of apportionment used must result in the sum of the proportionate amount of the purchase price that relates to each subdivided allotment or stratum unit equalling in total, the actual consideration for the acquisition. You cannot change the method of apportionment after sales of allotments or stratum units have been made unless the changed method is applied to calculate the margin for all sales (please refer to NOTE below).

Paragraphs 58 to 68 of GSTR 2006/8 provide examples of the methods of apportionment that can be used. You have advised that you have elected the 'Area method' that is defined in paragraph 59. The total saleable area of each lot would include the total area entitlement under each individual strata title. This could include, amongst other things, car spaces, balconies and courtyards.

However, you have also stated that 'there are significant variations in the selling value of the units due to water views and special features in the apartment building'. As such, it may be that the 'anticipated selling price' method as outlined in paragraphs 65 to 67 could better suit your needs.

We consider use of 'lots or sites' as an apportionment method would not give a fair and reasonable result, especially if the size or value of the lots or sites varied significantly, as they appear to do in this case. While the Commissioner is unable to prescribe which method you should use in making your apportionment, we reiterate that whichever method you choose must result in a fair and reasonable method of apportionment.

PLEASE NOTE: As explained in paragraph 58 of GSTR 2006/8, if the method of apportionment used by the debtor, in relation to the sales made by them prior to being placed in external administration, differs from the method of apportionment used by you, then you will be required to apply the changed method to the calculation of the margin for all the sales and make any necessary adjustments.

If the anticipated sales price method is used then you will need to include the actual selling price of the lots previously sold by the debtors in your calculation for future sales.