Edited version of private ruling

Authorisation Number: 1011868272001

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Ruling

Subject: Eligibility to apply the margin scheme

Question 1

Is the representative of the incapacitated entity eligible to supply the properties under the margin scheme?

Answer

No. The representative of the incapacitated entity cannot supply the properties under the margin scheme without first establishing that the acquisition of the entire property was made under a supply not ineligible for the margin scheme.

Question 2

If not, will the Commissioner extend the period for the representative of the incapacitated entity and the third party to enter into an agreement in writing to apply the margin scheme?

Answer

See below.

Facts

You are the receivers and managers to a trustee company of a trust.

As receivers you are managing the affairs of the trustee company and, in the course of that work, you are selling properties owned by the trustee company.

The trustee company is the registered owner of several properties.

The trustee company sold some of these properties before it went into receivership.

After your appointment, you sold more of those properties.

You built new properties.

The property was previously owned by a GST registered entity (Entity A).

The Entity A sold the property to a third party.

You do not have a copy of the contract of sale between Entity A and the third party and as such you do not know the GST status of the sale. Due to outstanding commercial issues between the trustee company and the third party you are unable to obtain confirmation of the GST status of this sale.

The third party entered into a contract of sale to sell the property to another company or its nominee.

The trustee company was incorporated and the other company that purchased the property from the third party nominated the trustee company to complete the sale contract it had with that other company. There is a common director and an ultimate shareholder of both trustee company and the other company

The trustee company is the trustee of the trust.

The trustee company is not registered for the GST. However, the trust is registered for the GST.

In relation to these transactions, the trustee company acts in its capacity as the trustee of the trust.

You believe that the above mentioned third party company and the trustee company are not related parties.

The commercial contract entered into between third party and the trustee company does not state the GST status of the transaction. The sale contract has clauses referring to the sale being made under the margin scheme and also as a going concern, neither of which is crossed out. In a subsequent amendment to the contract, the sale is stated as having been made under the margin scheme.

Pursuant to a Memorandum of Transfer, the third party then transferred the property to the trustee company for a stated consideration. The Settlement Statement for the transfer indicates that the price is inclusive of GST calculated under the margin scheme.

It is your view that lawyers and conveyancers acting for the third party would not have considered the sale price includes GST calculated under the margin scheme unless they were confident that the third party's acquisition status of the property was not ineligible for the application of the margin scheme at a subsequent sale.

Reasons for the decision

Division 58 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) deals with representatives of incapacitated entities. The key operative provisions provide that a supply, acquisition or importation by a representative, in its capacity as a representative, is taken for GST purposes, to be a supply, acquisition or importation of the incapacitated entity.

The provisions ensure that any method the incapacitated entity would have been eligible to use to work out the amount of GST payable on a supply (such as the margin scheme under Division 75) can be used. However, the representative (and not the incapacitated entity) is liable for or entitled to GST consequences that arise from a supply, acquisition or importation or related acts or omissions during the representative's appointment.

In this case it needs to be determined whether the receivers and managers can use the margin scheme in relation to the sale of the properties.

Division 75 of the GST Act deals with the application of the margin scheme in the supply of property. Paragraph 75-5(3)(a) of the GST Act states that a supply is ineligible for the margin scheme if it is a taxable supply on which the GST was worked out without applying the margin scheme.

In this case the GST status of the supply of the property by Entity A to the third party has not been established. That is, whether the supply was made under the margin scheme or as a GST-free supply of a going concern or as an input taxed supply.

Entity A, the supplier of the property to the third party, was registered for the GST at the time of the supply. In the absence of specific evidence as to the GST status of the supply the Entity A made to the third party, we cannot conclude that the supply of the third party to the trustee company was one that was eligible for the margin scheme to be applied.

A supply is ineligible for the margin scheme where the acquisition of which was a taxable supply on which the GST was worked out without applying the margin scheme. As the GST status of the third party's acquisition of the property is not evidentially established, we cannot advise on the representative of the incapacitated entity's entitlement to apply the margin scheme to the supply the properties.

Given the above, the issue of a Commissioner's discretion for an extension of time to enter into an agreement in writing to apply the margin scheme does not arise.