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Ruling

Subject: GST and application of the margin scheme to a State.

Question 1

Is a local government council (you) entitled to a refund?

Answer

Yes, you are entitled to a refund.

Relevant facts and circumstances

You are defined as a "State" for the purposes of Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

You have owned the land before 1 July 2000.

The status of the relevant lots as at 1 July 2000, are as follows:

· Ten lots had no buildings in 1995, nor by inference, on 1 July 2000, and hence were on land which had no improvements on it on 1 July 2000.

· Eleven lots had some buildings standing on them, however those buildings as at1 July 2000 no longer constituted improvements to the land due to their advanced state of disrepair.

You have notified the Commissioner of your entitlement to a GST refund for the periods for earlier tax periods which you received a positive reply.

You had initially calculated the margin on the basis of the difference between the market value of the land on 1 July 2000, and the consideration received from the developers for the sale in accordance with item 1 in the table in sub-section 75-10(3) of the GST Act.

However, you now submit that the margin should be calculated on the basis that you are defined as a State for the purposes of the GST Act and that item 4 of the table in sub-section 75-10(3) of the GST Act should be applied.

Your subsequent valuations that met the Margin Scheme Valuation requirements as determined by A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV2005/3 and GSTR 2006/7, were undertaken by a Professional Property Valuation Firm, which revealed the following:

· GST payable under the margin scheme, calculated on the basis that item 4 of the table in section 75-5(3) of the GST Act applied for all 72 lots, was for a small amount. The GST actually paid by you over the period was larger which due to the four year limit means that there has been an overpayment that cannot be recovered by you.

· The calculation of the net amount payable by you for the earlier GST periods that fall within the four year time limit, produces a negative net amount.

Relevant legislative provisions

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

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 75-10(3)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 75-10(3)(b)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 75-10(3), item 1

A New Tax System (Goods and Services Tax) Act 1999 Subsection 75-10(3), item 4

A New Tax System (Goods and Services Tax) Act 1999 Section 75-35

A New Tax System (Goods and Services Tax) Act 1999 Subsection 75-35(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 75-35(2)

Reasons for decision

Subsection 75-5(1A) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and the amendment to subsection 75-5(1) of the GST Act apply to supplies that are made under contracts entered into on or after 29 June 2005.

Subsection 75-5(1) provides that you may use the margin scheme if the supplier and the recipient have agreed in writing that the margin scheme is to apply. Subsection 75-5(1A) provides that the agreement must be made on or before making the supply, or within such further period as the Commissioner allows.

The margin for the supply is the difference between the consideration for the supply and the consideration for the acquisition of the real property unless subsection 75-10(3) applies.

Subsection 75-10(3) applies if an approved valuation has been made and:

· the circumstances in section 75-11 do not apply; and

· you acquired the real property before 1 July 2000.

Paragraphs 39-40 of Goods and Services Tax Ruling, GSTR 2006/7 - Goods and services tax: how the margin scheme applies to a supply of real property made on or after 1 December 2005 that was acquired or held before 1 July 2000, provides the following:

39. Under subsection 75-10(3), the margin for the supply is the difference between the consideration for the supply and the amount determined by the approved valuation. In the context of subdivisions, if land that is part of the original broadacres is used for public purposes, such as, roads, parklands or utilities ('lost land'), the valuation of the entire broadacres is apportioned to the total number of subdivided lots, so that the sum of the apportioned amounts equals the valuation for the broadacres (including the 'lost land').

40. When the margin scheme applies to the supply but there is no valuation, or a valuation is not an approved valuation under section 75-35, then the margin for the supply is calculated under subsection 75-10(2), provided section 75-11 does not apply."

As you are a State then paragraph 75-10(3)(b) of the GST Act provides the following for the valuation dates for the purposes of these provisions.

Subsection 75-35(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that the Commissioner may, by legislative instrument, determine in writing requirements for making valuations for the purposes of Division 75 of the GST Act. Subsection 75-35(2) of the GST Act provides that a valuation made in accordance with those requirements is an approved valuation.

For the purposes of working out the GST on a supply under the margin scheme, the A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2005/3 (Margin Scheme Determination) has been made under section 75-35 of the GST Act.

The Margin Scheme Determination provides that, generally, a valuation must be made by the due date for lodgement of the suppliers Activity Statement for the tax period to which the GST on the supply is attributable. However, if the valuation is not undertaken within this time, the Commissioner may for good reason allow an additional period to obtain a valuation.

Paragraph 11 of this Determination also requires that if the interest, unit or lease has been supplied by a State then "…the valuation must be a valuation, made in writing by a professional valuer determining the market value of the interest, unit or lease, that is not contrary to professional standards recognised in Australia for the making of real property valuations, as if no improvements had been made at the date of the supply."

You have met the requirements of this Determination as your valuation provides the following information:

· a full description of the property being valued;

· the applicable valuation date;

· the date the valuer provides the valuation to the supplier;

· the market value of the property at the valuation date;

· the valuation approach and the valuation calculation; and

· the qualifications of the valuer.

Therefore, as you have an approved valuation for the GST periods then you are entitled to a refund.