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Ruling

Subject: Application of the margin scheme

Question 1

Did the sale contract for the property contain written agreement between the vendor and the purchaser to apply the margin scheme?

Answer

Yes, the sale contract contained written agreement to apply the margin scheme.

This ruling applies for the following periods:

N/A

The scheme commences on:

N/A

Relevant facts and circumstances

You are a public trading trust. By contract, you agreed to purchase lots of real property from a vendor registered for GST.

This contract provided that the sale contained land that was a taxable supply to which the margin scheme applied.

The land you have developed is land that was a taxable supply to you to which the margin scheme applied.

You have developed a further X lots and have sold Y of those.

The contract for the sale of land relating to these Y lots provided:

· That your trustee was the vendor;

· On the front page, that the margin scheme applied to the sale;

· In a printed clause, that if the front page said the margin scheme applied, that the vendor and purchaser agree that the margin scheme applied; and

· In a special condition, that the vendor and purchaser agreed that the vendor, at its election, may utilise the margin scheme. This clause did not merge on completion.

All sale contracts for the sold lots were identical in terms of the GST provisions.

The vendor proceeded to completion of each of the lots on the basis that the vendor and the purchaser agreed to the application of the margin scheme to the sales, by virtue of the terms of the front page and the printed clause of the sale contracts.

After completion, the vendor wrote to each purchaser confirming that the vendor proceeded to completion on the basis that the written agreement evidenced by the front page and the printed clause of the sales contract confirmed that the margin scheme was being applied by the vendor in relation to each sale.

You contacted us confirming that this was the case, as you are concerned that the special condition conflicted with the front page and the printed clause of the sales contract.

Relevant legislative provisions

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

Reasons for decision

Section 75-5 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act') states that:

(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.

Subsection 75-5(2) of the GST Act provides that that margin scheme does not apply if you make a supply that is ineligible for the margin scheme.

Subsection 75-5(3) of the GST Act details when a supply is ineligible for the margin scheme.

As you acquired the property from an entity registered for GST as a taxable supply to which the margin scheme applied, you are able to apply the margin scheme to a subsequent sale of that property, subject to obtaining agreement in writing from the purchaser on or before the making of the supply.

Paragraph 38 of Goods and Services Tax Ruling GSTR 2006/8 Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000 (GSTR 2006/8) provides that the Commissioner considers that, for the sale of a freehold interest, you make the supply at settlement, as this is the time the purchaser obtains unconditional possession of a registrable instrument of transfer or an instrument of transfer that would be registrable once stamped.

Thus, you need to obtain agreement to apply the margin scheme on or before the date of settlement.

On the front page of the sale contract appeared the following information:

GST: Taxable supply □ NO ⊠ yes in full □ yes to an extent

Margin scheme will be used in making the taxable supply □ NO ⊠ Yes

The printed clause states that if the contract says that the margin scheme is to apply in making the taxable supply, the parties agree that the margin scheme is to apply to the sale of the property.

The special condition provides that the price includes GST. It also states that the vendor and purchaser agree that the vendor may, at its election, utilise the margin scheme in paying GST in respect of the taxable supply under the contract.

Paragraph 27 of GSTR 2006/8 states:

Commonly, contracts specify that there is no GST payable on a supply, but that if the supply is taxable then the GST payable will be calculated under the margin scheme. In these circumstances, the Commissioner accepts that the requirements in paragraph 75-5(1A)(a) have been satisfied.

We consider that you have made an agreement in writing with the purchaser to apply the margin scheme on the making of the supply. This agreement is evinced by the selections on the front page of the contract together with the printed clause of the contract.

The special condition allows you, the vendor, to utilise the margin scheme at your election. As you have made an election to use the margin scheme on the front page of the contract, there is no inconsistency or conflict with the remainder of the contract. In the sense that the special condition is a conditional application of the margin scheme, the Commissioner accepts that this is sufficient to satisfy the requirements of paragraph 75-5(1A)(a) of the GST Act.

Therefore, you have made a valid election to use the margin scheme as you have obtained written agreement from the purchasers on the making of the supply of property that is eligible for the margin scheme.