Edited version of your written advice

Authorisation Number: 1012763260319

Ruling

Subject: GST and attribution

Question

Is the attributable period for the disposal of the completed units to the Entity A the period in which you obtain Freehold title from Entity B?

Answer

No. goods and services tax (GST) is attributable to the period in which you receive the first part payment for the supply, however, it is anticipated that there will be no GST payable on the supply due to the application of the margin scheme when the consideration for the supply of the real property is less than the consideration for the purchase of that real 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.

• You are a company registered for GST.

• You, account for GST on an accruals basis.

• Entity B, Entity A and you have entered into an Agreement with respect to the staged development of vacant land into various residential complexes and for the sale and purchase of the land and units.

• The land subject to the Agreement is Crown Land held by Entity B.

• Under a clause of the Agreement, Entity B must grant and you must accept a Crown lease of the land per Crown Lease found at in the Schedule to the Agreement.

• Under certain clauses of the Crown Lease, the purpose of the lease is to grant tenure over the land for a period to allow the lessee to undertake development, for a specified amount of rent.

• Under a clause of the Agreement, you must surrender the lease on completion of Stage 1 of the Development in exchange for freehold title. The purchase price shall be per an item in a Schedule to the Agreement, subject to a reduction if you are not in breach of a separate agreement.

• Under a clause of the Agreement, you agree to sell to Entity A and Entity A agrees to buy from you the Entity B Units, defined in a Schedule of the Agreement as the units created in Stage 1. The price payable by Entity A to you is the Entity B Units Purchase Price.

• Under a clause of the Agreement Entity A is to pay the Entity B Units Purchase Price by instalments upon completion to Entity A's satisfaction of your Works in connection with Stage 1.

• The Agreement contains a clause about GST. Under this clause of the Agreement, the parties agree to the GST inclusive market value of your Works.

• Under this clause of the Agreement the parties agree to the GST inclusive market value of the freehold title to be granted by Entity B to you, at the time of the grant of the freehold and the Purchase Price. The parties also agree that the margin scheme will apply in the supply of the freehold title in the land.

• The Agreement documents that the parties agree to the Entity B Unit Purchase Price of and that the margin scheme will be applied to work out the GST payable on the transfer of the Entity B Units.

• You will then develop later stages as per the Development Plan on the land that you have acquired freehold at the completion of stage 1. Under a clause of the Agreement you agree to give Entity B the first right of refusal to purchase any or all of the units in later stages.

Supplies Made Under the Agreement

• Lease. Entity B makes a taxable supply of the land by way of a Crown lease to you.

• The Works. You make taxable supplies of building services to Entity B in developing Stage 1. The supply of building services constitutes non-monetary consideration for the acquisition by you of the freehold interest in the land.

• Freehold interest in the land. Entity B makes a supply of the freehold interest in the land to you on completion of Stage 1 for consideration that is an aggregate of the Purchase Price and the building services.

• Strata titled units in Stage 1. You make a supply of a number of strata titled units to Entity A on completion of stage 1 for consideration paid by Entity A in instalments which is equal to the agreed value of the development works for Stage 1.

• Strata titled units in later stages. You make supplies of strata titled units in later stages to third parties, subject to Entity B exercising its right of first refusal.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

Section 29-5.

Section 29-10.

Section 75-5

Section 75-10

Section 75-15

Reasons for decision

Summary

GST is attributable to the period in which you receive the first part payment for the supply, however, it is anticipated that there will be no GST payable on the supply due to the application of the margin scheme when the consideration for the supply of the real property is less than the consideration for the purchase of that real property.

Detailed reasoning

Division 29 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides the basic rules for attributing GST payable and input tax credits.

Subsection 29-5(1) of the GST Act provides that where an entity accounts for GST on a non-cash basis, the GST payable by the entity on a taxable supply is attributable to:

(a) the tax period in which any of the *consideration is received for the supply; or

(b) if, before any of the consideration is received, an *invoice is issued relating to the supply - the tax period in which the invoice is issued.

In this case you report GST on a non-cash basis quarterly. The attribution rules for supplies made by suppliers who report on a non-cash basis are set out in section 29-5(1) of the GST Act, which states that the GST relating to the supply is attributable to the tax period which is the earliest of (a) when any of the consideration is received for the supply or (b) when an invoice is issued in relation to the supply. In this case a percentage of the Entity B Units Purchase price is payable when a particular building milestone is completed.

Therefore you are required to attribute the GST payable on the supply of a number of strata titled units to Entity A in the tax period in which the partial payment of the Entity B Units Purchase price is paid as triggered by the completion of a particular building milestone.

The supply of a number of strata titled units in stage 1

You make a supply of a number of strata titled units to Entity A on completion of stage 1 for consideration. You will be entitled to apply the consideration method of the margin scheme to work out the GST payable on the supply of a number of strata titled units.

Under a clause of the Agreement Entity A is to pay the Entity B Units Purchase Price by instalments upon completion to Entity A's satisfaction of your Works in connection with Stage 1. The payments by instalments by Entity A are not for supplies of the Works, rather the payments by instalments are the agreed method by which Entity A pays for the supply of a number of strata titled units in Stage 1.

Your representative advised that it is the parties' preference that, for the supply of the freehold interest in a number of strata titled units by you to Entity A, the GST is attributable to the tax period in which a number of strata titled units are supplied to Entity A. In support of this outcome, your representative has asserted that there is some doubt as to whether the GST liability can actually be determined at this point. However your representative also states that the GST liability under the margin scheme is nil.

Section 29-25 - Commissioner may determine particular attribution rules

Your representative refers to paragraph 29-25(2)(e) of the GST Act as the mechanism by which the GST liability can be deferred to the tax period in which the units are supplied to Entity A. The provisions of paragraph 29-25(2)(e) allow the Commissioner to issue a Determination to apply in relation to attributing the GST on a supply where the consideration for a supply, or where the consideration for an acquisition is not known. In this case the consideration for the supply of a number of strata titled units are supplied to Entity A is set out in detail in a clause of the Agreement. Therefore, the provisions of paragraph 29-25(2)(e) do not apply as the relevant consideration is known.

Division 156 - Supplies and acquisitions made on a progressive or periodic basis

Division 156 of the GST Act does not apply to ascertain attribution in this case as Division 156 only applies where there is a periodic or progressive supply. In this case the supply of a number of strata titled units is not made as a periodic or progressive supply.

Margin scheme

You are entitled to use the margin scheme to work out the GST on the supply of a number of strata titled units to Entity A. You acquired the freehold interest in the land for consideration being an aggregate of the Purchase Price and the value of the Works. The consideration is to be apportioned when working out the cost base for margin scheme purposes to be applied to a number of strata units in Stage 1. It would appear reasonable that some of the Purchase Price and all of the value of the Works is apportioned to Stage 1. As the aggregate of the apportionment is greater than the consideration for the supply of a number of strata units in Stage 1 to Entity A, then the margin is nil, and therefore the GST payable is nil.