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Ruling

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

Question 1

Is a Local Government entity (you) entitled to a refund for overpaid GST related to sales of real estate under the margin scheme where the margin was previously miscalculated and which covers the relevant period?

Answer

Yes, you are entitled to a refund of for overpaid GST related to the sales of real estate under the margin scheme where the margin was previously miscalculated and which covers the relevant period

Question 2

If you make sales of subdivided land in the future in the same manner as the land referred to in Question 1 and choose to use the margin scheme to calculate any GST on the sales of that land, can the margin be calculated in accordance with Item 4 of Section 75-10(3)?

Answer

Yes, if you make sales of subdivided land in the future in the same manner as the land referred to in Question 1 and choose to use the margin scheme to calculate any GST on the sales of that land the margin can be calculated in accordance with Item 4 of Section 75-10(3).

Relevant facts and circumstances

You own substantial parcels of land, much of which you owned before 1 July 2000.

There are parcels of land which have been subdivided since July 2000.

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

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

You have used Method 3 in A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV2009/ (in respect of sales where contracts were settlement on or after 1 March 2010); and A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV2005/3, (in respect of sales where contracts were settlement prior to 1 March 2010) in order to determine the value.

These valuations have resulted in 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 lots, is substantially a lot less than the GST actually paid by you.

The calculation of the net amount payable by X for the GST periods produces a considerable negative net amount payable to you.

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

Question 1

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 following valuation determinations were used:

A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2005/3, for contracts settled after 1 December 2005 but prior to 1 March 2010.

A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2009/1, for contracts settled on or after 1 March 2010.

You have specifically used adopted Valuation Method 3 under both MSV 2005/3 and MSV 2009/1. This method uses the valuation the most recent value as determined before the valuation date by or on behalf of a State Government, thus meeting the requirements of these Determinations.

Therefore you are entitled to a refund.

Question 2

Adopting a similar methodology for future sales of subdivided land would achieve a similar consistency in ensuring that you pay the correct amount of GST payable.