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Edited version of your written advice
Authorisation Number: 1051447168073
Date of advice: 31 October 2018
Ruling
Subject: Recipients of certain taxable supplies of real property must pay amounts to commissioner and Division 75 Sales of Freehold Interests etc. of the GST Act
Question
Is the amount to be paid by the purchaser is pursuant to section 14-250 of the Tax Administration Act 1953 (TAA1953) Schedule 1, likely to equal the GST liability of the supplier, pursuant to Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
No. The amount to be paid by the purchaser is pursuant to section 14-250 of the TAA 1953 Schedule 1, is unlikely to equal the GST liability of the supplier, pursuant to Division 75 of the GST Act.
The scheme commences on:
Not applicable
Relevant facts and circumstances:
You believe the amount of GST payable by the developer will be 1/11 of the margin (pursuant to Division 75 of the GST Act), however subsections 14-250(6) and 14-250(7) of the TAA 1953 Schedule 1 contradict this and appear to require of either 1/11 of the contract price or the price of the supply.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 - Division 75
Taxation Administration Act 1953, Schedule 1 – section 14-250
Reasons for decision
You made a request in order to clarify the effect of the interaction of Division 75 (sales of freehold interest etc.) of the GST Act and section 14-250 of the TAA 1953 Schedule 1 (GST payable on taxable supplies of certain real property).
In particular, why the word "amount" is stated at paragraph 14-250(6)(b) of the TAA 1953 instead of the word "margin" as stated at sections 75-10, 75-11 and 75-16 of the GST Act. Therefore, the calculation for the margin scheme under Division 75 of the GST Act may not lead to the same result because of the words ‘margin’ and ‘amount’.
The term "margin" is a defined term in the GST Act at section 195-1 (Dictionary) and reverts to sections 75-10, 75-11 and 75-16 of the GST Act.
The term "amount" is also a defined tem in the GST Act at Division 195-1 (Dictionary), but it does not revert to sections of the GST Act unlike the term "margin".
As you have stated subsection 75-10(1) of the GST Act states that the GST payable on a taxable supply of real property is 1/11th of the margin for the supply. Subsequent provisions such as subsections 75-10(2), 75-10(3) and section 75-11 of the GST Act explain what the margin will be in particular circumstances.
The introduction of section 14-250 of Schedule 1 to the TAA 1953 has not altered any of this.
The supplier is still liable for the same amount of GST pursuant to Division 75 of the GST Act as they would have been before the new measure of section 14-250 of the TAA 1953 Schedule 1 was introduced.
Subsection 14-250(1) of the TAA 1953 –Schedule 1 requires the recipient of a specified taxable supply (new residential premises or potential residential land) to pay an amount to the Commissioner. This amount is not final amount of GST payable pursuant to Division 75 of the GST Act.
The amount to be paid is determined by subsection 14-250(6) of the TAA 1953 - Schedule 1. If the margin scheme applies the purchaser will be required to pay 7% (see 14-250(6)(a)(ii) or 14-250(7) of the TAA 1953 - Schedule 1).
When the supplier lodges their activity statement they will report the sale and the Label 1A will include 1/11th of the margin of the supply (this is no change to how things were before 1 July 2018). If the purchaser has paid the amount (7% of contract price) to the Commissioner, the supplier will receive a credit equal to the amount paid to the Commissioner by the purchaser (subsection 18-60(2) of the TAA – Schedule 1).
Example:
Contact price $250,000
Margin $110,000
If the supplier applies the margin scheme, at settlement the purchaser will be required to pay (7% x $250,000) $17,500 to the Commissioner and the balance of $232,500 to the supplier.
When the supplier lodges their BAS they will have GST payable of (1/11th of $110,000) $10,000. If the purchaser has paid the required amount of $17,500 to the Commissioner the supplier will receive a credit of the $17,500. This would result in a refund of $7,500 to the supplier (assuming nothing else on the BAS).
In summary, the amount to be paid by the purchaser in these circumstances pursuant to section 14-250 of the TAA 1953 - Schedule 1 is unlikely to equal the GST liability of the supplier, pursuant to Division 75 of the GST Act.