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Ruling
Subject: goods and services tax (GST) and the margin scheme
Question 1
Will you be entitled to apply the margin scheme to calculate GST on your supplies of the apartments made under the apartment sales contracts?
Answer
Yes.
Question 2
Will the cost price available to you for the purposes of determining your margin on your sales of the apartments made under the apartment sales contracts be a certain percentage of the price (after adjusting for settlement adjustments) you pay for your purchase of the development site?
Answer
The total cost price of the apartments that you sell could be calculated by multiplying the price you paid for the development site by the estimated proceeds from your sale of apartments you create from the development and dividing the result of this calculation by the total estimated proceeds from selling all of the units you create from the development.
This ruling applies for the following periods:
The scheme commences on:
Relevant facts and circumstances
You are registered for GST.
You will purchase a development site at a location in Australia (the development site) from your supplier.
The development site consists of a building with a certain number of levels (including the basement) plus a rooftop something and premises that were formerly a residence (which was later converted to commercial premises).
When your supplier purchased the development site it was fully tenanted. In addition to retail tenancies, parts of the building had been leased to a certain entity and the upper floors had been rented as approximately a certain number of separate commercial premises.
After your supplier purchased the development site, it obtained planning approval to develop the building to create ground floor, something and a certain floor retail and commercial tenancies plus a certain number of apartments.
The sale of the development site to you will be a taxable supply. The property sale contract between your supplier and you provides that the parties agree that the margin scheme will be used to calculate GST on the sale of the development site to you.
You and your supplier will not be members of the same GST group when you purchase the development site from your supplier.
You will not acquire the development site from a joint venture operator of a GST joint venture at a time when you are a participant of that joint venture.
You will develop the development site into a combination of apartments and retail premises.
You will strata title the apartments.
You will sell apartments and retail and commercial units in the property on completion of their construction.
Each apartment sale contract you have entered into with your purchasers contains a clause pursuant to which the parties agree that the margin scheme applies to the supply of the apartment.
The estimated gross realisation from sale of the apartments is a certain amount of money.
The estimated gross realisation from sale of the retail and commercial units is a certain amount of money.
The total estimated gross realisation from the developed property is a certain amount of money.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 subsection 75-5(1)
A New Tax System (Goods and Services Tax) Act 1999 subsection 75-5(1A)
A New Tax System (Goods and Services Tax) Act 1999 subsection 75-5(2)
A New Tax System (Goods and Services Tax) Act 1999 subsection 75-5(3)
A New Tax System (Goods and Services Tax) Act 1999 subsection 75-10(1)
A New Tax System (Goods and Services Tax) Act 1999 subsection 75-10(2)
Reasons for decisions
Question 1
Summary
You can use the margin scheme to calculate GST on your sale of the apartments as they will be taxable supplies of real property that you make by selling stratum units; you will not acquire the stratum units through a supply that is ineligible for the margin scheme and you and the purchasers will agree in writing before you sell the apartments that the margin scheme would be used to calculate GST on your sales of the apartments.
Detailed reasoning
Subsection 75-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:
The margin scheme applies in working out the amount of GST on a taxable supply of real property that you make by:
(a) selling a freehold interest in land
(b) selling a stratum unit
(c) granting or selling a long-term lease.
if you and the recipient have agreed in writing that the margin scheme is to apply.
Subsection 75-5(1A) of the GST Act states:
The agreement must be made
(a) on or before making the supply, or
(b) within such further period as the Commissioner allows.
However, subsection 75-5(2) of the GST Act states:
However, the *margin scheme does not apply if you acquired the freehold interest, stratum unit or *long-term lease through a supply that was ineligible for the margin scheme.
Subsection 75-5(3) of the GST Act sets out the circumstances in which a supply is ineligible for the margin scheme.
You will make taxable supplies of real property by selling stratum units when you sell the apartments. You will not acquire your interests in the stratum units through a supply that is ineligible for the margin scheme. You and the purchasers will agree in writing before you sell the apartments that the margin scheme would be used to calculate GST on your sales of the apartments.
Therefore, you may use the margin scheme to calculate GST on your sales of the apartments.
Question 2
In accordance with subsection 75-10(1) of the GST Act, if a taxable supply of real property is under the margin scheme, the amount of GST is 1/11th of the margin for the supply.
Ultimately, GST is a self actuating tax, the calculation of which depends upon a number of variables.
We cannot provide you with the values or percentages to use in calculating a liability. We can however provide formulae to calculate the margins under the margin scheme.
In accordance with subsection 75-10(2) of the GST Act, the margin for your sale of an apartment will be the difference between the price you sell the apartment for and your cost price for the apartment. The cost price for the apartment will need to be calculated by apportioning your purchase price for the development site on a fair and reasonable basis to the apartment. One way to calculate the cost price for an apartment that you sell is to multiply the price you paid for the development site by the estimated sale price for the apartment and dividing the result of this calculation by the total estimated proceeds from selling units you create from the development.
The total cost price of the apartments that you sell could be calculated by multiplying the price you paid for the development site by the estimated proceeds from your sale of apartments you create from the development and dividing the result of this calculation by the total estimated proceeds from selling all of the units you create from the development.