Edited version of your private ruling

Authorisation Number: 1012467528103

Ruling

Subject: Sale of property

Question:

Would the apportionment of the purchase price to the Lot 1 carried out by a Real Estate Agent's appraisal be sufficient to calculate the margin or do we need to obtain a valuation from a registered valuer?

Advice:

See detail reasoning below.

This ruling applies for the following periods:

N/A

The scheme commences on:

N/A

Relevant facts and circumstances

· You are the trustee company for a family trust (Trust)) and are registered for the goods and services tax (GST).

· A is the sole director of the trustee company and also the beneficiary of the Trust.

· You are carrying on an enterprise of property development.

· You and A purchased a property under one title, as tenants in common after the advent of GST.

· The property that was purchased was a residential premises and the supplier was an individual.

· The property was not supplied as a taxable supply and consequently neither a tax invoice was issued nor was any input tax credit claimed on its acquisition.

· A, in his own right, is not registered for the GST.

· The residential premises were demolished and the property was subdivided in 20XX into two lots, Lot 1 and Lot 2.

· Subsequently, two new residential dwellings were constructed, one on each lot.

· The title of Lot 2 was transferred to A and the title of Lot 1 was transferred to the Trust.

· Stamp duties were paid on these transfers but no money changed hands between the transferor and the transferee.

· A intends to occupy the newly built residential dwelling on Lot 2 as his principal place of residence.

· The Trust intends to sell the residential dwelling on Lot 1.

· Lot 1 has road frontage and Lot 2 fronts a side lane for which the Lot 2 has right of way.

· You wish to apply the margin scheme in the calculation of the GST when the Trust sells Lot 1.

· You believe Lots 1 and 2 have different values based on the location, land area and improvements.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 section 75-11.

A New Tax System (Goods and Services Tax) Act 1999 section 75-13.

Reasons for decision

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) does not prescribe how an apportionment should be carried out. Goods and Services Tax Ruling - Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000 (GSTR 2006/8) provides a number of methods that you may use for apportionment of subdivided property. Although GSTR 2006/8 provides a number of methods of apportionment, it also does not prescribe any particular method. The guiding principle provided in GSTR 2006/8 is that the method you use must be "fair and reasonable".

However, before you apply the margin scheme to work out the amount of GST on the taxable supply of real property you make, you need to determine whether or not you are eligible to do so.

In this case the property you intend to sell, Lot 1, was transferred to you for no consideration by the entity that held the title to the property as tenants in common, namely, the trustee company (that is you) and A. A is the sole director of the trustee company, the trustee of the family Trust (Trust)). A is also the beneficiary of the Trust.

The Australian Taxation Office (ATO) may consider this entity (that is, the trustee company and A) as a partnership under tax law. Consequently, the ATO may consider that you acquired the property from an associate and the associate provisions of the GST Act may apply in this case.

Subsection 75-5(3) of the GST Act lists supplies that are ineligible for the margin scheme. Where the provisions of paragraph 75-5(3)(g) of the GST Act apply in acquisitions made from associates, a supply made from such acquisitions is ineligible for the margin scheme.

If paragraph 75-5-(3)(g) of the GST Act does not apply for a supply acquired from an associate, section 75-11 of the GST Act may need to be considered to determine the margin. This section deals with the margins for supplies of real property in particular circumstances. Subsection 75-11(6) of the GST Act deals with the margin for supplies for real property acquired from associates.

Please note that in the case of subdivided land, section 75-15 of the GST Act states that:

For the purpose of sections 75-10 to 75-14, if the freehold interest, *stratum unit or *long-term lease you supply relates only to part of land or premises that you acquired, the *consideration for your acquisition of that part is the corresponding proportion of the consideration for land or premises that you acquired.

(Items marked with an asterisk is defined in section 195-1 of the GST Act)

Further, the entity, the trustee company and A, when it transferred the titles of Lot 1 and Lot 2 to the trustee company and to A respectively, may have made taxable supplies and may be liable to pay GST on those supplies.

We enclose the following ATO publications for your information and guidance.

1. Goods and Services Tax Ruling - Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000 (GSTR 2006/8).

2. A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2009/1