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Edited version of your written advice
Authorisation Number: 1012708244799
Ruling
Subject: Goods and services tax and eligibility for the margin scheme.
Question 1
Can Entity A apply the margin scheme under section 75-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to the proposed sale of its commercial property to Entity B?
Answer
The proposed sale of the commercial property will be eligible for the margin scheme under section 75-5 of the GST Act where Entity A and Entity B agree in writing, on or before the supply is made, that the margin scheme is to apply.
Question 2
Is the margin calculated as the difference between the proposed sale price and the acquisition price of the commercial property?
Answer
Yes.
Subsection 75-10(1) of the GST Act sets out the amount of GST on taxable supplies of real property under the margin scheme to be 1/11 of the margin for the supply. Subsection 75-10(2) of the GST Act provides that the margin for the supply is the amount by which the consideration for the supply exceeds the consideration for your acquisition of the commercial property.
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
Entity A is registered for goods and services tax (GST).
Entity A purchased a commercial property from a Vendor in July 200X.
The commercial property was acquired by Entity A from the Vendor as a GST-free going concern as all the requirements of section 38-325 of the GST Act were met. That is, Entity A and the Vendor have agreed in writing that the supply is of a going concern and the Vendor has supplied to Entity A all things that are necessary for the continued operation of an enterprise. Also the Vendor carried on the enterprise until the day of the supply of the commercial property to Entity A which is the date the settlement for the property occurred.
Entity A now intends to sell the commercial property to Entity B. Entity B is not registered for GST.
Entity A will sell the commercial property at market value.
Entity A wishes to apply the margin scheme to the sale of the commercial property to Entity B.
Entity A calculates the margin for the sale of the commercial property to be the difference between the estimated sale price and the acquisition price. The GST payable is then calculated as 1/11of the margin.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999:
Section 9-5
Section 75-5
Section 75-10