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Ruling

Subject: GST and application of margin scheme

Question 1:

Is the amount paid for the acquisition of a property, the consideration for the purposes of applying the margin scheme to a taxable supply under subsection 75-10(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer:

The amount paid for the acquisition of the property, would be considered as the consideration for the purposes of applying the margin scheme to a taxable supply under subsection 75-10(2) of the GST Act provided an appropriate increasing adjustment in line with section 75-22 of the GST Act is made for the reimbursement amount. Please refer to the reasons for decision for more details.

Question 2:

Are you entitled to claim input tax credit for the payment of a reimbursement in relation to the acquisition of the above property?

Answer:

No, you are not entitled to claim input tax credit for the payment of reimbursement in relation to the acquisition of the above property.

Question 3:

Are you required to pay back the amount claimed as input tax credits by you in relation to the reimbursement payment?

Answer:

Yes, you are required to pay back the amount claimed as input tax credits by you in relation to the reimbursement payment.

Question 4:

Are you required to make an increasing adjustment under section 75-22 of the GST Act, when you make a taxable supply of the above property?

Answer:

Yes, you are required to make an increasing adjustment under section 75-22 of the GST Act in relation to the payment of reimbursement to enable you to use the amount paid for the purchase of the property as consideration for the purpose of the margin scheme. Please refer to the reasons for decision to question (a).

This ruling applies for the following periods:

Not applicable

The scheme commences on:

Not applicable

Relevant facts and circumstances

You are a developer of land for residential and other purposes.

You are registered for Goods and Services Tax (GST).

You purchased a land with the intention of developing new residential premises for sale.

You advised that the vendors of the above property were not registered for GST purposes.

Entity A entered into an agreement with the vendors of the above property to acquire the land.

Pursuant to the terms of the contract of sale for the land, it was proposed that entity A would nominate another entity in their group as the purchaser of the land prior to the settlement.

Entity B has been nominated as nominee by entity A as per the nomination agreement.

Entity A paid the original deposit and two instalments of the purchase price to the vendors as per Particulars of Sale.

Entity C entered into negotiations with the entity A in relation to the purchase of the land and agreed that entity A would nominate you as the purchaser of the land from the owners.

Entity A and entity B jointly assigned all the rights and obligations under the nomination agreement to you.

You agreed to pay entity A an amount as a nomination fee plus GST.

You also agreed to reimburse entity A with the original deposit and two instalments paid by entity A to the vendors.

After the completion of the agreement you were nominated as the purchaser of the land from the vendors and the purchase was settled accordingly.

You paid the nomination fee and reimbursement amount to entity A.

You claimed input tax credits for the reimbursement amount paid to entity A.

You also claimed input tax credits for the nomination fee paid to entity A.

You were requested to confirm whether you received tax invoices from entity A in relation to the nomination fee and the reimbursement amount. You did not confirm whether you received tax invoices from entity A in relation to these payments.

We also requested you to provide a contract/agreement between you and the vendor in relation to the purchase of the above property. You did not provide any information in relation to this request.

You are in the process of developing the land for the construction of new residential premises for sale.

The sale of new residential premises will be taxable supplies and you intend to apply the margin scheme on the sale of new residential premises.

According to the Deed of Accession/Nomination Agreement, entity A and entity B have agreed to assign all their rights and obligations under the Nomination Agreement to you as Assignee.

The Deed of Accession/Nomination Agreement states that "the assignee is substituted for the nominee under the Nomination Agreement as if the Assignee had originally been named as a party to the Nomination Agreement instead of the Nominee".

The Deed of Accession/Nomination Agreement states that "… all of the rights, interest and benefits under the Nomination Agreement are the Assignee's rights, interest and benefits to the same extent and effect as if the Assignee were named as a party to the Nomination Agreement instead of the Nominee".

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5,

A New Tax System (Goods and Services Tax) Act 1999 Subsection 75-10(2),

A New Tax System (Goods and Services Tax) Act 1999 Subsection 75-10(3),

A New Tax System (Goods and Services Tax) Act 1999 Section 75-22 and

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision

Question (a)

Under the margin scheme, the GST payable on the supply of certain real property is 1/11 of the margin on the supply. The choice to apply the margin scheme must be made at or before the time you make a taxable supply of real property.

Under subsection 75-10(2) of the GST Act the margin for the supply is the difference between the consideration for the supply and the consideration for the acquisition of the interest, unit or lease unless subsection 75-10(3) of the GST Act applies.

The date on the particulars of sale contract suggests that the real property purchased was settled after 1 July 2000 and as such subsection 75-10(3) of the GST Act is not applicable.

The term real property is defined in section 195-1 of the GST Act to include any interest in or right over land or a personal right to call or be granted any interest in or right over land or a licence to occupy land or any other contractual right exercisable over or in relation to land.

It follows that a freehold sale of land would come within the definition of real property. You have acquired an interest in the land. The consideration for your acquisition of the land is the original price paid in respect of the interest, unit or lease in question.

You paid an amount that is referred to as reimbursement to entity A as part of the consideration for the acquisition of the property. You also incorrectly claimed input tax credit for the payment of the reimbursement made to entity A.

We do not have sufficient information to determine whether you treated the purchase of the property as a taxable supply to you and therefore your claim to input tax credit for the payment of reimbursement cannot be ascertained. You did not provide a tax invoice in relation to the payment of reimbursement to entity A and did not provide satisfactory reasons for claiming the input tax credits.

Based on the information provided, you are required to make an appropriate increasing adjustment in line with section 75-22 of the GST Act for the reimbursement amount paid to entity A. The purchase price of the property would be considered as the consideration paid for the acquisition of the property for the purposes of the margin scheme, only after you make this increasing adjustment.

Please note that the above advice has been provided based on the fact that the vendor is not registered for GST or not required to be registered for GST. In case the vendor is required to be registered for GST, you may not be entitled to apply the margin scheme on the taxable supply of the property. We do not have sufficient information to determine whether the vendors are required to be registered for GST.

We requested you to provide information in relation to the purchase of the property such as contract/agreement between you and the vendor and you did not respond to the additional information requested for. We also requested you to confirm to us whether entity A had issued tax invoices in relation to the payments made to them to determine the nature of the transactions. We did not receive any response or explanation for not providing the information.

Therefore, the advice provided in this ruling is based on the limited information provided by you.

Question (b)

GST is payable on taxable supplies that an entity makes.

You make a taxable supply under section 9-5 of the GST Act if you make a supply for consideration; the supply is made in the course or furtherance of an enterprise that you carry on; the supply is connected with Australia; and you are registered or required to be registered.

However, a supply is not a taxable supply to the extent that it is GST-free or input taxed.

In this case what needs to be determined is whether there have been any supplies made by entity A to you for which the amount that is referred to as the reimbursement is the consideration.

You advised that entity A paid the vendors the original deposit and two instalments pursuant to the terms and conditions of the contract between them in relation to the purchase of the above property. When entity A and entity B assigned the rights to purchase the property to you, you agreed to reimburse the amount to entity A.

You were requested to confirm whether you received a tax invoice issued by entity A in relation to the payment of reimbursement to enable you to claim input tax credit. You have not responded to this additional information requested. You have also acknowledged that you have incorrectly claimed input tax credit for the payment of reimbursement to entity A.

Based on the information provided entity A did not make any supplies to you and it appears that they did not issue a tax invoice to you in relation to the payment of the reimbursement. Therefore, you are not entitled to claim input tax credit for the payment of the reimbursement as this payment is not made as a consideration for any supplies.

Question (c)

As explained in question (b) you are not entitled to claim input tax credit for the payment of reimbursement as there was no supply made by entity A to you and no tax invoice was issued by entity A to enable you to claim input tax credit.

The information provided by you in relation to the payment of reimbursement to entity A is not sufficient for us to provide a ruling on whether this transaction could be considered as a wash transaction.

Furthermore, there is no evidence provided that entity A in fact has paid the GST amount on the reimbursement to the ATO. Under this circumstance, Practice Statement Law Administration PSLA 2002/12 will not be applicable to your situation.

Therefore, you are liable to pay the GST amount claimed incorrectly on the payment of reimbursement to entity A.

Question (d)

Please refer to the reasons for decision to question (a)