Edited version of your private ruling

Authorisation Number: 1012450556219

Ruling

Subject: sale of property

Issue:

Will the Commissioner of Taxation (Commissioner) exercise his discretion to extend the period within which you and the purchasers of your property may make an agreement in writing for the margin scheme to apply to the sale?

Decision:

No. The Commissioner will not exercise his discretion to extend the period within which you and the purchasers of your property may make an agreement in writing for the margin scheme to apply to the sale.

Relevant facts and circumstances

· You are the current trustee of a trust (Trust).

· Previously another entity was the trustee of this Trust.

· You are carrying on an enterprise of property development.

· You are registered for the goods and services tax (GST).

· You, on behalf of the Trust, sold a property. The contract of sale (Sale Contract) and the settlement were both in 20XX.

· You inform us that the Sale Contract did not specify the responsibility for the payment of the GST, although a clause in the contract stipulated that the purchase price included GST.

· The property was purchased by the Trust, through its trustee, in 200Y.

· You were subjected to a GST audit by the Australian Taxation Office (ATO) which was finalised in 20ZZ.

· Among the issues determined at this audit, it was found that you made a taxable supply of the property when you sold it in 20XX, and which you had failed to disclose when you lodged your activity statement for the relevant tax period.

· Therefore, you were assessed for the GST on the sale of the property and the GST payable amount at label 1A of your activity statement for the relevant tax period was increased.

· Administrative penalty was also imposed on you as it was determined that your behaviour which led to the shortfall in GST payment was due to lack of reasonable care.

· You objected to the assessment of the GST net amount and the imposition of the administrative penalty in a letter to the ATO.

· In objecting to the ATO assessment you gave reasons as to why you did not include the sale of this property in your activity statement.

· The ATO responded by letter not accepting your reasons and disallowing the objection.

· Subsequent to this, you wrote to us informing that you and the purchasers of the property have agreed in writing to apply the margin scheme, and submitted a document to this effect.

Relevant legislative provisions

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

Reasons for decision

Under subsection 75-5(1) of the GST Act, the margin scheme may only apply in working out the amount of GST on a taxable supply of real property if the supplier and recipient of the supply have agreed in writing that the margin scheme is to apply to the supply. The agreement must be made on or before the making of the supply, or within such further period as the Commissioner allows.

The supplies in this case were made after 29 June 2005.

Under subsection 75-5(1A) of the GST Act, the Commissioner has the discretion to allow a further period of time, after the making of the supply, for the supplier and recipients of the supply to make the agreement in writing.

The Law Administration Practice Statement PS LA 2005/15 (PS LA 2005/15) sets out the circumstances in which the Commissioner may exercise his discretion under subsection 75-5(1A) of the GST Act. The discretion may be exercised where the Commissioner is satisfied that:

· all the requirements to apply the margin scheme, other than the requirement for the agreement in writing, are met; and

· there is no arrangement that has the effect of producing an outcome contrary to the policy of the legislation.

Paragraph 12 of PS LA 2005/15 states:

"In considering whether to exercise the discretion, the Commissioner will look at the circumstances of each case to consider what would be fair and reasonable to all parties. In doing so, the Commissioner will consider the delay in entering into the agreement, the explanation for the delay and any other relevant circumstances, bearing in mind that this is an ameliorating provision designed to avoid injustice….."

In the audit carried out by the ATO it was determined that your behaviour which led to the shortfall in GST payment was due to lack of reasonable care. The delay in entering into the agreement was because you did not disclose this sale in your activity statement for the relevant period. You provided your reasons for not recording this sale in your activity statement in an objection you submitted for the assessment and the penalty imposed. This objection was disallowed by the ATO.

As the failure to enter into written agreement at the time of the sale was due to lack of reasonable care on your part in not disclosing this sale in your activity statement, the Commissioner considers it is not appropriate for him to exercise his discretion to extend the time for you to enter into a written agreement with the purchasers to treat this sale under the margin scheme.

Consequently, you cannot apply the margin scheme for the sale of the property and you are required to pay the appropriate GST amount as assessed by the ATO audit.