Edited version of your private ruling

Authorisation Number: 1012587852637

Ruling

Subject: eligibility to use the margin scheme

Question 1

Will you be able to apply the margin scheme to your supply of new residential premises?

Answer

Yes. You will be able to apply the margin scheme to your supply of new residential premises described in this private ruling.

Relevant facts and circumstances

· This private ruling applies to three parties.

· These three parties are collectively referred to as 'you' from this point in the private ruling.

· You acquired a 1970s residential property (the property) in 2009.

· The vendor who supplied the property to you was not registered for GST. No GST was applied to the sale and they did not claim an input tax credit.

· The property contained a residential dwelling which was leased to a tenant at the time the vendor acquired the property.

· The vendor was granted with development approval to knock down the existing premises and to build two new townhouses.

· The vendor has since decided not to proceed with the development.

· Two entities plan to purchase the property as tenants in common in their respective capacities as partners.

· A third entity, being a partnership made up of both the abovementioned entities (the partnership) will be used to demolish the existing premises and to build two new townhouses.

· The townhouses will then be sold to independent third parties.

· The residential dwelling on the property is intact and is not presently leased to a tenant.

· The supply of the property by the vendor to you would be an input taxed supply.

· The vendor is registered for GST.

· All of the parties to this ruling request are registered for GST.

· The vendor is aware that you intend to demolish the existing premises and build two new townhouses in accordance with the development approval.

· You will not claim an input tax credit on the purchase of the property.

· You do intend to claim input tax credits for your redevelopment costs.

· You wish to sell the completed townhouses under the GST Margin Scheme.

· You will treat the sales of the completed townhouses as taxable supplies.

· You confirmed in an email to the ATO dated 7 February 2014 that none of the ineligibility conditions under subsection 75-5(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) will apply to this case.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 75-5

Section 40-65

Section 40-75

Reasons for decision

Summary

You are able to utilise the margin scheme.

Detailed reasoning

Section 40-65 of the GST Act provides that the supply of residential premises are input taxed unless they are new residential premises. Section 40-75 of the GST Act provides that residential premises are new residential premises if they have been built to replace demolished premises on the same land, or have not previously been sold as residential premises and have not been previously the subject of a long-term lease.

As you will be building residential premises that will have not been previously sold, then you are selling new residential premises. The supply of the new residential premises will be a taxable supply of real property that you will make by selling a freehold interest in land.

Section 75-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you can use the margin scheme to bring within the GST system your taxable supplies of freehold interests in land.

Subsection 75-5(1) of the GST Act states:

(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.

The supply of the real property by you will be a taxable supply, and therefore will be eligible for the margin scheme, provided you obtain an agreement in writing with the recipient of the supply that the margin scheme will apply.

However, subsection 75-5(2) of the GST Act provides that you cannot use the margin scheme apply if you acquired the interest through a supply that is ineligible for the margin scheme.

Subsection 75-5(3) defines which supplies are ineligible for the margin scheme.

You have advised that you will acquire the property as an input taxed supply (as opposed to a taxable supply) of residential premises. The supply of the property to you is not a taxable supply. Therefore you did not acquire the property through a supply that was ineligible for the margin scheme.

You confirmed in an email to the ATO dated 7 February 2014 that none of the ineligibility conditions under subsection 75-5(3) of GST Act will apply to this case. Specifically, the other requirements of paragraphs 75-5(3)(b) to 75-5(3)(g) do not apply, in that:

· You did not acquire the property by inheriting it from a deceased person.

· You were not a member of a GST group, and therefore did not acquire the property from another entity within the GST group.

· You were not a member of a joint venture, and therefore did not acquire the interest from another entity within the joint venture.

· You did not acquire the interest as part of a GST-free supply of a going concern.

· You did not acquire the interest as part of a GST-free supply of farmland.

· You did not acquire the interest from an associate.

Your supply of the new townhouses are therefore eligible for the margin scheme in the scenario that you have described and you will be able to apply the margin scheme to your supply of the new townhouses provided that you obtain an agreement in writing with the recipient of the supply that the margin scheme will apply.