Edited version of your written advice

Authorisation Number: 1051205700211

Date of advice: 13 April 2017

Ruling

Subject: GST and margin scheme

Question 1

Have the Parties ‘genuinely’ agreed to apply the margin scheme, based on the background facts, to the sale of the property?

Answer

Yes. According to the facts provided the parties have agreed to apply the margin scheme to the sale of the property.

Question 2

If the answer to Question 1 is that genuine doubt exists in respect of whether the parties had agreed to the application of the margin scheme, will the Commissioner allow the parties to rectify the agreement to not use the margin scheme?

Answer

The Tax Office is of the view that the parties had agreed to the application of the margin scheme prior to the making of the supply of the property. Therefore, the Commissioner will not allow the parties to rectify the agreement to not use the margin scheme.

Question 3

If the answer to Question 1 is in the affirmative, what is the correct margin scheme valuation calculation?

Answer

In this instance, for margin scheme purposes, the calculation is as follows:

(GST inclusive price = ((11 x GST exclusive price) - Valuation amount) / 10

Margin = GST inclusive Price – 1 July 2000 value

GST payable = 1/11 * Margin

This ruling applies for the following periods:

NA

The scheme commences on:

NA

Relevant facts and circumstances

● The parties signed a contract for the sale of a property.

● The vendor and the purchaser are registered for GST.

● A valuation report as at 1 July 2000 was obtained.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 sections 75-5, 75-10.

Reasons for decision

Question 1

Applying the margin scheme

Subsection 75-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that the margin scheme applies in working out the amount of GST on a taxable supply of real property that you make by:

● selling a freehold interest in land; or

● selling a stratum unit; or

● granting or selling a long-term lease;

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

According to subsection 75-5(1A) of the GST Act the agreement must be made:

● on or before the making of the supply; or

● within such further period as the Commissioner allows.

In this case, according to the facts provided to us, there is evidence of agreement between the parties. The documents provided to us are contemporaneous evidence that indicate the intention of the vendor and the purchaser regarding the application of the margin scheme to the sale of the property.

Therefore, the documentary evidence you have supplied indicate there was a choice made by the parties, prior to the supply of the property, regarding the application of the margin scheme.

As the vendor and the purchaser have agreed and signed the contract they are in no position to argue the sale was not intended to be made under the margin scheme.

Question 2

While there are administrative provisions within the GST Act that may allow the use of the margin scheme after the supply is made, there is no provision within the GST Act that would allow the margin scheme to be revoked after the choice has been made and the margin scheme was correctly applied to a supply.

Accordingly you cannot elect to revoke the application of the margin scheme once it has been properly made.

In your submission letter you mentioned ATO ID 2010/83. ATO ID 2010/83 is about the inability of entities to revoke an agreement to apply the margin scheme after the supply is made and where the parties have agreed in writing to the application of the margin scheme prior to the supply being made.

ATO ID 2010/83 will apply in this case.

Question 3

Subsection 75-10(1) of the GST Act states that if a taxable supply of real property is under the margin scheme the amount of GST on the supply is 1/11th of the margin, which is the amount by which the consideration for the supply exceeds the consideration for the acquisition of the interest, unit or lease; unless subsection 75-10(3) or section 75-11 applies.

Goods and services tax (GSTR 2006/7) explains how the margin scheme applies to a supply of real property made on or after 1 December 2005 that was acquired or held before 1 July 2000.

Paragraphs 38-39 of GSTR 2006/7 have been reproduced below:

Subsection 75-10(3) applies if an approved valuation has been made and:

● the circumstances in section 75-11 do not apply; and

● you acquired (or in some cases held) the real property before 1 July 2000; or

● you acquired the real property on or after 1 July 2000, but the supply to you:

(i) was GST-free under subsection 38-445(1A); and

(ii) related to a supply before 1 July 2000, by way of lease, that would have been GST-free under section 38-450 had it been made on or after 1 July 2000 (item 2A).

Under subsection 75-10(3), the margin for the supply is the difference between the consideration for the supply and the amount determined by the approved valuation…

In this instance a valuation report as at 1 July 2000 was obtained.

Paragraph 75 of GSTR 2000/21 provides how to calculate the GST payable on a supply under the margin scheme where the GST exclusive price is known and a valuation as at 1 July 2000 was obtained.

Therefore, the formula used to calculate the margin is found in GSTR 2000/21 at paragraph 75 and is as follows:

GST inclusive price = ((11 x GST exclusive price) - Valuation amount) / 10

Margin = GST inclusive Price – 1 July 2000 value

GST payable = 1/11 * Margin