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Ruling

Subject: GST and margin scheme

Question 1

Are you eligible to apply the margin scheme under Division 75 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) on the future sale of the Property?

Answer

Yes.

Relevant facts and circumstances

You purchased the Property from the Vendor. Pursuant to a Special Condition in the Contract the purchase price was GST inclusive. At the time of purchase, the Property was a vacant site with no improvements. A Special Condition in the Contract provides:

To the extent the supply of the Land is a taxable supply and to the extent that the Seller is entitled to apply the margin scheme to the supply of the Land, the Seller and Buyer agree to apply the margin scheme.

Later you sent an email to the Vendor, requesting that the Vendor confirm that the margin scheme was in fact applied to the sale of the Property. The Vendor responded with an email as follows:

We refer to your email below and are instructed that the seller was not able to apply the margin scheme to the sale of the land. Accordingly the supply was treated as a full taxable supply by the seller.

Please let us know if your client requests a tax invoice in respect of the sale.

Subsequently you requested that the Vendor provide a tax invoice. The Vendor advised that the margin scheme would be applied to the sale of the Property based on additional information uncovered after the sale.

You responded by email requesting clarification in respect of the Vendor's entitlement to apply the margin scheme. The Vendor replied as follows:

The seller of the property has been registered for GST since xx Xxxxxxx XXXX. Further, the seller acquired the land as part of a GST-free going concern (see attached contract).

We trust this resolves the matter to your client's satisfaction.

After reviewing the copy of the original purchase contract (Original Contract) provided by the Vendor, you replied as follows:

Thank you for your email.

I note that the Contract provides that the sale of the property by the Vendor to your client was as a supply of a going concern. However, the Contract also provides that if the sale is deemed a taxable supply then GST on a full consideration basis is to be applied.

On this basis, could you confirm on what basis the sale of the property to your client constituted a supply of going concern. I note that the Contract provides that the properly constituted vacant land and was not subject to a lease at settlement.

The Vendor did not respond to the above email. You sent a letter to the Vendor which outlined the background facts and requested that the Vendor issue a tax invoice immediately. More than 28 days had passed since the request for the tax invoice was made. You received a letter from the Vendor stating that the margin scheme was able to be applied by the Vendor and that the sale of the Property had been reported to the Australian Taxation Office (ATO) on that basis. As a result, the Seller advised that it was not going to issue a tax invoice to the Taxpayer.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 75-5

Reasons for decision

Summary

Where your future supplies meet the requirements of subsections 75-5(1), (1A) and (1B), you are eligible to apply the margin scheme.

Detailed Reasoning

You will be eligible to use the margin scheme on future sales of the Property where the requirements of section 75-5 of the GST Act are met. In particular subsections 75-5(1), (1A), (1B) and (2) state:

(1) 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; or

(b) selling a *stratum unit; or

(c) granting or selling a *long-term lease;

if you and the *recipient of the supply have agreed in writing that the margin scheme is to apply.

(1A) The agreement must be made:

(a) on or before the making of the supply; or

(b) within such further period as the Commissioner allows.

Note: Refusing to allow, or allowing, a further period within which to make an agreement is a reviewable GST decision (see Subdivision 110-F in Schedule 1 to the Taxation Administration Act 1953).

(1B) A supply that you make to your *associate is taken for the purposes of subsection (1) to be a sale to your associate whether or not the supply is for *consideration.

(2) However, the *margin scheme does not apply if you acquired the entire freehold interest, *stratum unit or *long-term lease through a supply that was *ineligible for the margin scheme.

Note: If you acquired part of the interest, unit or lease through a supply that was ineligible for the margin scheme, you may have an increasing adjustment: see section 75-22.

It will not be known until future supplies of the Property are made as to whether the requirements of subsections 75-5(1), (1A) and (1B) of the GST Act will be met. For the purposes of this ruling it is assumed that the requirements will be met.

Of particular relevance to your future use of the margin scheme is whether subsection 75-2(2) of the GST Act may apply. Based on our examination of the facts it is considered that you acquired its interest in the Property through a supply that was eligible for the margin scheme. Therefore you are eligible to apply the margin scheme on its future supplies of the property.