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Ruling

Subject: GST and the margin scheme

Question 1

Are you entitled to claim input tax credits on the progress payments made in relation to the construction of two new residential units for sale?

Answer

Yes, you are entitled to claim input tax credits on the progress payments made in relation to the construction of two new residential units for sale.

Question 2

Are you eligible to apply the margin scheme on the sale of two new residential units built by you?

Answer

Yes, you are eligible to apply the margin scheme on the sale of two new residential units built by you.

Relevant facts and circumstances

You are registered, as property developers, for the purposes of the Goods and Services Tax (GST)

You purchased a block of land and you are in the process of subdividing the land with the intension of building two new residential units for sale.

The vendor of the property has advised you that the margin scheme was applied on the sale of this property and the relevant GST was remitted by them.

They also advised you that the margin scheme clause was included in the contract of sale.

You informed us that you did not claim any input tax credit when you acquired the land.

Your accountant advised you that you are entitled to claim input tax credits on the cost of the construction of two new residential units for sale.

Your accountant also advised you that when you sell the two new residential units, you are required to remit 1/11^th of the GST amount on the sale price.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5,

A New Tax System (Goods and Services Tax) Act 1999 Section 11-15,

A New Tax System (Goods and Services Tax) Act 1999 Section 11-20,

A New Tax System (Goods and Services Tax) Act 1999 Section 40-70,

A New Tax System (Goods and Services Tax) Act 1999 Section 40-75 and

A New Tax System (Goods and Services Tax) Act 1999 Division 75.

Reasons for decision

Question 1

Summary

You are entitled to claim input tax credits on the progress payments made in relation to the construction of two new residential units for sale.

Detailed reasoning

Under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) you are entitled to an input tax credit for any creditable acquisition you make.

Section 11-5 of the GST act provides that you make a creditable acquisition if you acquire anything solely or partly for a creditable purpose; the supply of the thing to you is a taxable supply; you provide or are liable to provide consideration for the supply and you are registered or required to be registered for GST.

Section 11-15 of the GST act provides that you acquire something for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, you do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed or the acquisition is of a private or domestic nature.

You informed that you are in the process of building two new residential units for sale and you are registered for GST. Therefore, you will be making creditable acquisitions, in the course of carrying on your enterprise of property developers, when you acquire anything in relation to the construction of two new residential units.

Section 40-75 of the GST Act provides that new residential premises include residential premises that have not previously been sold as residential premises; or have been created through substantial renovations of a building; or have been built, or contain a building that has been built to replace demolished premises on the same land.

Section 40-70 of the GST Act provides that supplies of new residential premises are not input taxed. Where a supply is input taxed, GST is not payable on that supply and there will be no entitlement to an input tax credit for anything acquired to make that supply.

As you will be making creditable acquisitions in relation to the construction of the two units you will be entitled to input tax credits on those acquisitions.

Question 2

Summary

You are eligible to apply the margin scheme on the sale of two new residential units built by you.

Detailed reasoning

Division 75 of the GST Act grants the option of applying the margin scheme in some circumstances to reduce your GST liability on taxable supplies.

The margin scheme provides some relief in relation to property transactions and allows for a reduced amount of GST to be paid. It applies to the supply of freehold interest in land, strata units and long-term leases, including those held on 1 July 2000. Under the margin scheme the amount of GST on a supply is 1/11 of the margin for the supply.

The margin scheme cannot be used if a property is acquired through a taxable supply where GST was calculated without using the margin scheme.

You informed us that you acquired the land under the margin scheme and did not claim GST credits for this acquisition. Therefore, you are eligible to apply the margin scheme on the sale of the two residential units.

Please note that:

· your election to apply the margin scheme does not affect your entitlement to claim input tax credits;

· the agreement to use the margin scheme must be made before the making of the supply.