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This edited version has been archived due to the length of time since original publication.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 ruling

Authorisation Number: 1011814932214

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Ruling

Subject: GST and the margin scheme

Question

Can you use the margin scheme when you sell newly built residential premises that are to be built on your property located in Australia?

Answer

Yes

Relevant facts and circumstances

    · You are not registered for goods and services tax (GST).

    · You purchased houses located in Australia several years ago (Properties).

    · The Properties are residential premises and were used as residential premises at the time of your purchase.

    · The Properties were not new residential premises at the time of your purchase.

    · You have stated the vendor was registered for GST at the time of the sale.

    · The Sales Contracts show that each Property was sold to you as a taxable supply using the margin scheme.

    · You are considering developing the Properties by demolishing the residential premises and any other structures upon the land and building new residential premises for sale.

    · You will register for GST at the appropriate time.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

Section 40-65

Division 75

Paragraph 75-5(3)(a)

Subsection 75-10(2)

Subsection 75-10(3)

Taxation Administration Act 1953 (TAA)

Section 105-55 of Schedule 1

Reasons for decision

Summary

You can use the margin scheme when calculating the GST payable on the sale of your new residential premises.

Detailed reasoning

Incorrect GST treatment of the sale of the Properties to you

Under section 40-65 of the GST Act, the sale of residential premises (but not including new or commercial residential premises) to be used predominantly for residential accommodation (regardless of the term of occupation) is input taxed.

In your case, the Properties are houses, were not new residential premises at the time of purchase, and therefore should have been sold to you as an input taxed supply. Instead they were sold incorrectly as a taxable supply using the margin scheme.

The GST treatment of this sale can now no longer be corrected as a consequence of the application of Section 105-55 of Schedule 1 of the Taxation Administration Act 1953 which places a time limit of four years on such corrections. Note that had the vendor been able to correct the GST treatment of their sale you would have been eligible under Division 75 of the GST Act to apply the margin scheme to your sale of the new residential premises (provided the other necessary requirements of Division 75 are satisfied).

Given the sale cannot be corrected we now accept that the Properties were sold as a taxable supply using the margin scheme. Accepting this, you are still eligible to sell your new residential premises using the margin scheme as provided by Paragraph 75-5(3)(a) of the GST Act (again providing the other necessary requirements of Division 75 are satisfied).

Margin scheme calculation

In your circumstances, the margin is calculated as given by Subsection 75-10(2) of the GST Act, that is, the margin is the amount by which the consideration received for the new residential premises exceeds the consideration paid for the Properties (note that Subsection 75-10(3) of the GST Act is not relevant given you obtained the Properties in 200X).

I have enclosed the fact sheet GST and the margin scheme that provides information on the application of the margin scheme to your circumstances. Further information is also available from our website www.ato.gov.au.


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