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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your private ruling

Authorisation Number: 1012460817683

Ruling

Subject: Margin scheme

Question

Can you, as the mortgagee in possession, apply the margin scheme when selling the vacant land?

Decisions

Yes, you, as the mortgagee in possession, can apply the margin scheme when selling the vacant land.

Relevant facts and circumstances

    · You are the mortgagee in possession of a property which is vacant land.

    · You are neither registered nor required to be registered for the goods and services tax (GST).

    · The mortgagor is registered for the GST.

    · The mortgagor purchased the vacant land from an individual who was not registered for the GST.

    · Consequently, the vacant land was not supplied to the mortgagor as a taxable supply.

    · As the supply of the land to the mortgagor was not taxable, the mortgagor was neither issued with a tax invoice nor did the mortgagor claim input tax credit on the acquisition.

    · As the mortgagor was unable to pay back the debt the mortgagor owes to you, you took possession of the property.

    · You intend to sell the vacant land to a third party in or towards the satisfaction of the debt that the mortgagor owes you.

    · You are of the view that if the mortgagor were to make this supply of the vacant land for consideration, then, the supply would be a taxable supply and, to the best of your knowledge, the supply would not be ineligible for the margin scheme under subsection 75-5(3) of the GST Act.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) - Section 105-5

Reasons for decision

Subsection 75-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that:

    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.

(The asterisked items are defined in the GST Act at section 195-1)

In this case you are the mortgagee in possession of the vacant land and you are selling the property to a third party in or towards the satisfaction of the debt that the mortgagor owes you.

You are neither registered nor required to be registered for the GST Act. Therefore, under section 9-5 of the GST Act, you do not make a taxable supply.

However, section 105-5 of the GST Act states:

    1) You make a taxable supply if:

      a) you supply the property of another entity (the debtor) to a third entity in or towards the satisfaction of a debt that the debtor owes to you; and

      b) had the debtor made the supply, the supply would have been a *taxable supply.

    2) It does not matter whether:

      a) you made the supply in the course or furtherance of an *enterprise that you *carry on; or

      b) you are *registered, or *required to be registered.

    3) However, the supply is not a *taxable supply if:

      a) the debtor has given you a written notice stating that the supply would not be a taxable supply if the debtor were to make it, and stating fully the reasons why the supply would not be a taxable supply; or

      b) if you cannot obtain such a notice - you believe on the basis of reasonable information that the supply would not be a taxable supply if the debtor were to make it.

    4) This section has effect despite section 9-5 (which is about taxable supply).

In this case the mortgagor (the debtor) is registered and if the mortgagor were to sell the property it would be a taxable supply. Based on the facts presented, it does not appear that the mortgagor has given any written notice to you to state that if the mortgagor were to make the supply it would not be a taxable supply.

Consequently, although you are neither registered nor required to be registered, the supply of the property by you will be a taxable supply. As the supply is taxable, you can apply the margin scheme to work out the amount of GST payable provided all the requirements under section 75-5 of the GST Act are satisfied at the time you make the supply.


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