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This edited version has been archived due to the length of time since original publication.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

Authorisation Number: 1012931162413

Date of advice: 22 December 2015

Ruling

Subject: Goods and Services Tax - Property

Question 1

Are you entitled to an input tax credit under Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in respect of your acquisition of Lot 1 and Lot 2?

Answer

No.

An input tax credit is available under Division 11 of the GST Act where you make a creditable acquisition. The requirements of a creditable acquisition include that the supply to you is a taxable supply.

We consider that you have acquired the property as GST free supply and not a taxable supply. Therefore you have not made a creditable acquisition and are not entitled to an input tax credit.

Question 2

Will you be entitled to apply the margin scheme under Division 75 of the GST Act to calculate your liability on the sale of new residential premises at the completion of the project?

Answer

Yes

Division 75 allows the use of the margin scheme where certain requirements are met. Based on the facts provided, you satisfy the provisions of section 75-5 and are entitled to apply the margin scheme to your supply of new residential premises.

Question 3

How is the margin for the supply calculated on the sale of new residential premises at the completion of the project, for the purposes of calculating your GST liability, where

    (a) you choose to apply an approved valuation to work out the margin?

    (b) you choose not to apply an approved valuation to work out the margin?

Answer

Under paragraph 75-11(5)(e) the margin for the supply you make is the amount by which the consideration for your supply exceeds:

    • an approved valuation of the property as of DDMMYYYY, being the date on which the vendor acquired the property (per subparagraph 75-11(5)(e)(i) if you choose to apply an approved valuation) or

    • $x, being the consideration paid by the vendor (per subparagraph 75-11(5)(e)(ii) if you choose not to apply an approved valuation).

Relevant facts and circumstances

    • The Land is situated at Lot 1 and Lot 2 (the Land).

    • The Land is subject to a 99 year lease ('head lease').

    • Entity A held the head lease in the land, as of XXMMYYYY.

    • Entity A granted a sub-lease to Entity B for a period of 2 years on XXMMYYYY.

    • Entity C acquired the site for $x, as a GST-free supply of a going concern on XXMMYYYY.

    • Entity C is registered for GST.

    • Entity B surrendered its sublease over the site to Entity C on XXMMYYYY.

    • Entity C granted a sublease over the site for the term of xx years, to Entity D on XXMMYYYY.

    • Entity E (you) registered for GST on XXMMYYYY.

    • Entity C (the Vendor) contracted to supply its interest in the Land to you on XXMMYYYY.

    • The sale of the property has settled.

    • The Contract for sale of Land is subject to existing tenancies and contains the following clauses:

    • 33. Goods and Services Tax - Going Concern

    • 33.1 for the purpose of this clause:

      (a)…

      (b) Enterprise means the Vendor's enterprise of leasing

      (c)…

    • 33.2 The parties agree that the sale of the Property under this contract is the supply of a going concern for the purposes of subdivision 38-J of the GST Act and that that supply is 'GST free' for the purposes of the GST Act.

    • 33.3 The vendor warrants that it will under this contract supply to the purchaser all of the things that are necessary for the continued operation of the Enterprise

    • 33.4 The vendor warrants that it carries on the Enterprise, and will carry on the Enterprise until completion of this contract.

    • 33.5 The parties warrant that they are registered or required to be registered under Part 2.5 of the GST Act and will continue to be so at all relevant times up to completion of this contract.

    • …

    • You and Entity C are not associates and have negotiated with each other on arms-length commercial terms.

    • You and Entity C are not and have never been members of the same GST group.

    • You will construct and supply new residential premises.

    • The sales contracts will provide that you and the purchaser agree that the margin scheme is to apply.

    • You will obtain an approved valuation of the site as of XXMMYYYY.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 11,

A New Tax System (Goods and Services Tax) Act 1999 Section 38-325 and

A New Tax System (Goods and Services Tax) Act 1999 Division 75.


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