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This edited version has been archived due to the length of time since original publication.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.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of private advice

Authorisation Number: 1012685547482

Ruling

Subject: Margin scheme

Questions:

    1. Can the GST payable on the taxable supply of property be calculated under the margin scheme?

    2. Will the margin be the difference between the sale price and the price paid for the property by the vendor who sold the property to you?

Answer

    1. Yes, the GST payable on the taxable supply of property can be calculated under the margin scheme.

    2. Yes, the margin will be the difference between the sale price and the price paid for the property by the vendor who sold the property to you.

Relevant facts and circumstances

    • You are a company carrying on an enterprise in property investment.

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

    • You acquired a property (Property) from Company A.

    • The Property was sold to you by Company A as GST-free going concern complying with all the requirements under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

    • Company A made the supply to you in 20XX for Price B.

    • Company A purchased the Property from Company B in 200X as a GST-free going concern complying with all the requirements under section 38-325 of the GST Act for a price of Price A.

    • You have now contracted to sell the Property to an unrelated party Company C for approximately Price C under the margin scheme and fulfilling all the requirements as provided in Division 75 of the GST Act. The settlement will be in 20YY.

    • You declare that the supply you intend to make is not ineligible for the margin scheme under subsection 75(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 75-11

Reasons for decision

Applying the margin scheme

To calculate and pay GST under the margin scheme, you must be eligible to apply the margin scheme. Subsection 75-5(1) of the 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) …..

      (c) …..

    if you and the *recipient of the supply have agreed in writing that the margin scheme is to apply.

(Asterisked terms are defined at section 195-1 of the GST Act)

In this case you are selling freehold interest in land and you agreed in writing with the purchaser that the margin scheme applies to the sale. You also state that the supply is not ineligible for the margins scheme under subsection 75-5(3) of the GST Act. Therefore, you are eligible to use the margin scheme and to calculate the GST payable on this basis.

Calculation of the margin

The margin for the supply of real property acquired as a GST-free going concern is explained in subsection 75-11(5) of the GST Act, which states that:

    If:

      (a) you acquired the interest, unit or lease in question from an entity as, or part of:

      (i) a *supply of a going concern to you that was *GST-free under Subdivision 38-J; or

      (ii) …..

      (b) the entity was *registered or *required to be registered, at the time of the acquisition; and

      (c) none of subsections (1) to (4) applies;

    The margin for the supply you make is the amount by which the *consideration for the supply exceeds:

      (a) if that entity had acquired the interest, unit or lease before 1 July 2000 and….

      (b) if that entity had acquired the interest, unit or lease after 1 July 2000 and had been registered or required to be registered at the time of the acquisition:

      (iii) if the entity's acquisition was for consideration and you choose to apply an approved valuation to work out the margin for the supply - an approved valuation of the interest, unit or lease as at the day on which the entity had acquired it; or

      (iv) if the entity's acquisition was for consideration and subparagraph (i) does not apply - that consideration; or

      (v) if the entity's acquisition was without consideration……

      (c) if that entity had not been registered….

In this case you purchased the property in 20XX from an entity that acquired it as a GST-free going concern. The supplier of the property to you purchased the property for consideration (Price A). You are now selling the property under the margin scheme to a third party for consideration (Price C). Therefore, under subsection 75-11(5) of the GST Act, the margin is Price C minus Price A.


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