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Edited version of your private ruling
Authorisation Number: 1012461769622
Ruling
Subject: Sale of property
Issue
Can you apply the margin scheme to the sale of the proposed residential units?
Decision:
No, you cannot apply the margin scheme to the sale of the proposed residential units.
This ruling applies for the following periods:
N/A
The scheme commences on:
N/A
Relevant facts and circumstances
· You are the trustee of a family trust.
· You are carrying on an enterprise in property development.
· You are registered for the goods and services tax (GST).
· You, in partnership with another entity, purchased a commercial property after 1 July 2000.
· The partnership was registered for the GST at the time of the purchase.
· The property was sold to the partnership as a taxable supply but without applying the margin scheme.
· Subsequent to the purchase, the partnership was terminated and the property was put out for auction.
· You purchased the property at the auction at the prevailing market prices.
· The partnership sold the property to you as a taxable supply without the application of the margin scheme.
· The partnership remitted GST on the sale at 1/11th of the sale price.
· Subsequent to this purchase, you purchased an adjoining 'right to use' lane way.
· The lane way was sold to you as a taxable supply.
· The development approval (DA) required you to consolidate the two properties under one title prior to subdivision, which you did.
· You now intend to build residential units on subdivided lots and sell them.
Relevant legislative provisions
A New Tax System (Good and Services Tax) Act 1999 (GST Act) - Section 75-5
Reasons for decision
Subsection 75-5(1) of the A New Tax System (Good and Services Tax) Act 1999 (GST Act) states that:
The *margin scheme applies in working out the amount of GST on *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 *long-term lease;
if you and the *recipient of the supply have agreed in writing that the margin scheme is to apply.
(Items marked with asterisks are defined at section 195-1 of the GST Act)
Subsection 75-5(2) of the GST Act state as follows:
However, the *margin scheme does not apply if you acquired the entire freehold interest *stratum unit or *long-term lease through a supply that was *ineligible for the margin scheme.
Paragraph 75-5(3)(a) of the GST Act states that a supply is ineligible for the margin scheme if it is a taxable supply on which the GST was worked out without applying the margin scheme.
You acquired the two properties, which were subsequently consolidated, as taxable supplies without the application of the margin scheme. As such, when you sell the proposed residential units, those supplies will be ineligible for the margin scheme.
You are required to remit 1/11th of the price for which you sell these proposed residential units to the Australian Taxation Office as GST.