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Ruling

Subject: GST and margin scheme

Question

Are you entitled to claim input tax credits for the acquisition of a property under the margin scheme?

Answer

No, you are not entitled to claim input tax credits for the acquisition of a property under the margin scheme.

This ruling applies for the following periods:

Not applicable

The scheme commences on:

Not applicable

Relevant facts and circumstances

You are registered for Goods and Services Tax (GST)

You carry on an enterprise of property development.

You purchased a property under the margin scheme with the intention of building residential properties for sale.

According to the tax invoice the amount payable at settlement included the GST payable under the margin scheme.

You informed that you were told by an accountant that GST paid to purchase a block of land was claimable.

You informed that the contract of the sale included the margin scheme as part of the terms and conditions.

However, you were also told after settlement that you could not claim input tax credits because your acquisition was made under the margin scheme.

You want to know whether, in your circumstances, you are entitled to claim input tax credits on your acquisition.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Section 75-20.

Reasons for decision

Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (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. The margin scheme cannot be used if a property is acquired through a taxable supply where GST was calculated without using the margin scheme.

Under the margin scheme the amount of GST on a supply is 1/11 of the margin for the supply. The margin is the amount by which the consideration for the supply exceeds the consideration for the acquisition on the interest, unit or lease in question.

You informed us that you acquired the property under the margin scheme and the sale price included GST.

When you acquire a block of land under the margin scheme, you cannot claim input tax credits for the GST payable on the acquisition. This is because section 75-20 of the GST Act states that an acquisition of a freehold interest in land, a stratum unit or a long-term lease is not a creditable acquisition if the supply of that land was a taxable supply under the margin scheme. Therefore, as you acquired the property under the margin scheme, you are not entitled to claim input tax credits on your acquisition of the property.

Information about the application of the margin scheme is contained in Fact Sheet NAT 8680 and NAT 8682 which are available on the Tax Office website at www.ato.gov.au