Edited version of your written advice

Authorisation Number: 1012837104766

Date of advice: 13 July 2015

Ruling

Subject: GST and the use of margin scheme and reporting GST

Question 1

Are you entitled to use the margin scheme on the sales of the subdivided lots of land?

Answer

Yes.

Question 2

If you are entitled to use the margin scheme, will the Commissioner of Taxation exercise his discretion to extend the period within which you and the purchasers of the subdivided lots of land may make agreements in writing for the margin scheme to apply to the sales?

Answer

Yes.

Question 3

Can the liquidator report the sales of all the subdivided lots of land sold by other than the liquidator in the CAC 1 of the trust?

Answer

No. Please refer to the reasons for decision.

This ruling applies for the following periods:

Not applicable

The scheme commences on:

Not applicable

Relevant facts and circumstances

• The Company (in Liquidation) as trustee for a trust is registered for goods and services tax (GST).

• The company acquired a property from a vendor who was registered for GST.

• The vendor has confirmed the following:

• The property was inherited on or around 19XX from his/her parents and subdivided into two lots.

• He/she was registered for GST between 20AA and 20BB for managing his investment portfolio.

• He/she did not charge GST on the sale of the property acquired by the Company as the sale was not made in the course or furtherance of any other enterprise carried out by him/her.

• He/she did not acquire the property for the purpose of profit by resale and the property was used as his/her personal residence.

• He/she considered sale as mere realisation of capital asset held by him/her.

• The Company was registered as sole proprietor of the property.

• The Company subdivided the property into a number of lots for sale.

• During the period from 20WW to 20XX, half of the lots were sold by the Company subject to contracts which elected the margin scheme. The lots were not settled during this period.

• The property was subject to a mortgage held by a bank and the bank appointed an agent for the mortgagee in possession (the Controller).

• The Controller obtained a legal advice in relation to the margin scheme which advised that the margin scheme was not available since the vendor was registered for GST and the sale of the property to the Company was likely to be considered as a taxable supply.

• The Controller settled the sales of half the lots without using the margin scheme.

• Based on the advice received by the Controller, the remaining lots were sold without electing the margin scheme.

• An Official Liquidator was appointed for the Company pursuant to an order of the Federal Court of Australia.

• The Liquidator settled one of the lots and the bank also settled a number of lots as mortgagee in possession.

• The bank did not remit any GST from the sales of the lots sold by them and remitted $YYY to the Liquidator's trust account and has requested the Liquidator to pay the GST liability.

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 - Subsections 75-5(1) and 75-5(1A)

A New Tax System (Goods and Services Tax) Act 1999 - Paragraphs 75-5(3)(a), 105-5(1)(a), 105-5(1)(b)

Reasons for decision

Question 1

Under section 75-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you may choose to use the margin scheme to work out the GST payable on the supply if you make a taxable supply of real property by selling a freehold interest in land; or selling a stratum unit; or granting or selling a long-term lease.

However, the margin scheme does not apply if you acquired the entire freehold interest through a supply that was ineligible for the margin scheme. Therefore, it is necessary to determine whether the vendor of the property had acquired the property through a supply that was ineligible for the margin scheme.

Paragraph 75-5(3)(a) of the GST Act provides that a supply is ineligible for the margin scheme if it is a taxable supply on which the GST was worked out without applying the margin scheme.

Based on the information provided, the Company as trustee for the trust acquired the property from a vendor who did not charge GST on the sale of the property. Although the vendor was registered for GST, they have confirmed that the property was the personal assets of the vendor and never used it in carrying on their enterprise. The vendor has considered the sale of the property as mere realisation of capital assets. Therefore, the supply of this property to the Company was not a taxable supply.

The Commissioner agrees that the Company is entitled to use the margin scheme on the sales of the subdivided lots of land based on the information provided.

Question 2

Under subsection 75-5(1) of the GST Act, the margin scheme may only apply in working out the amount of GST on a taxable supply of real property if the supplier and recipient of the supply have agreed in writing that the margin scheme is to apply to the supply. The agreement must be made on or before the making of the supply, or within such further period as the Commissioner allows.

Under subsection 75-5(1A) of the GST Act, the Commissioner has the discretion to allow a further period of time, after the making of the supply, for the supplier and recipients of the supply to make the agreement in writing.

The Law Administration Practice Statement PSLA 2005/15 sets out the circumstances in which the Commissioner may exercise his discretion under subsection 75-5(1A) of the GST Act. The discretion may be exercised where the Commissioner is satisfied that:

• all the requirements to apply the margin scheme, other than the requirement for the agreement in writing, are met; and

• there is no arrangement that has the effect of producing an outcome contrary to the policy of the legislation.

As explained in question 1, other than satisfying the requirement of the written agreement, to apply the margin scheme you must be making a taxable supply by selling a freehold interest in land; selling a stratum unit; or supply of a long term lease.

However, you will not be able to use the margin scheme if you are selling real property that you:

• acquired through a taxable sale on which the margin scheme was not used;

• inherited from a person who would not have been able to use the margin scheme;

• acquired from a member of the same GST group who would not have been able to use the margin scheme; or

• as a participant in a GST joint venture, acquired from the joint venture operator who would not have been able to use the margin scheme.

The Commissioner is satisfied that the Company is entitled to use the margin scheme on sale of subdivided lots of land as explained above. Based on the information provided, except for the agreement in writing, all the other requirements to apply the margin scheme to the supply of the subdivided lots of land were met at the time of the sale.

Furthermore, there is no evidence that suggests that any arrangement exists that would have the effect of producing an outcome contrary to the policy of the legislation.

As such, the Commissioner exercises his discretion to extend the period to 20ZZ for making the written agreement to apply the margin scheme to the supply of the subdivided lots of land after the settlement. The bank as mortgagee in possession and the Liquidator are required to execute the written agreement with the respective purchasers of the eight lots of land prior to 20ZZ.

Question 3

Division 105 of the GST Act deals with supplies made by creditors of property belonging to a debtor, where the supply is in satisfaction of a debt owed to the creditor.

Paragraphs 105-5(1)(a) and 105-5(1)(b) of the GST Act provide that a creditor will make a taxable supply if they supply the property of a debtor to a third entity in or towards the satisfaction of a debt owed by the debtor to themselves and had the debtor made the supply, the supply would have been a taxable supply.

Furthermore, the creditor is liable for any GST payable on the supply of the debtor's property whether or not the supply is made in the course of the creditor's enterprise or if the creditor is registered or required to be registered for GST.

The creditor (which could either be a receiver manager, mortgagee in possession or a liquidator) is taken to be standing in the shoes of the debtor when the creditor make the supply or is acting as an agent for the debtor.

In this case, the bank as a mortgagee in possession sold various lots towards the satisfaction of the debt owed by the Company and settled these lots. Therefore, the bank is liable to remit the GST in relation to the sales of these lots of land in their BAS. The Liquidator is liable to remit the GST in relation to the sale of another lot in the CAC 3 of the trust as they have settled this lot as a liquidator of the Company.

Therefore, the Liquidator cannot report all the sales of the subdivided lots of land sold by other than the Liquidator in the CAC 1 of the trust.