Edited version of private advice

Authorisation Number: 1051550277001

Date of advice: 24 July 2019

Ruling

Subject: GST and the margin scheme

Question

Is Entity A entitled to apply the margin scheme in accordance with Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to work out the amount of GST payable on its taxable supplies of new residential premises?

Answer

Yes.

This ruling applies for the specified period.

The scheme commences on the specified date.

Relevant facts and circumstances

·        Entity A (You) is currently registered for the goods and services tax (GST).

·        You purchased real property in Australia (the Property) from Entity B (vendor), for the specified purchase price.

·        The vendor was registered for GST at the time of settlement of your acquisition.

·        The vendor purchased the Property from Entity C prior to 1 July 2000.

·        The Property comprised land and commercial premises.

·        The sale of the Property by the vendor to you was a GST-free supply of a going concern under section 38-325 of the GST Act.

·        You were not a member of a GST group or participant to a GST joint venture at the time that you acquired the interest in the Property.

·        The vendor that you acquired the Property from was not an associate of yours.

·        You subsequently demolished the existing commercial premises and built new residential premises on the land, for sale.

·        Your supply of the newly constructed residential premises will be a taxable supply.

·        You plan to sell the completed residential premises under the margin scheme.

·        You and the purchaser will agree in writing that the margin scheme is to apply to the sale of the new residential premises. This written agreement will be made on or before settlement.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 75-5(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 75-5(2)

A New Tax System (Goods and Services Tax) Act 1999 subsection 75-5(3)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 75-5(3)(e)

A New Tax System (Goods and Services Tax) Act 1999 subsection 75-5(4)

A New Tax System (Goods and Services Tax) Act 1999 subsection 75-11(5)

Reasons for decision

In this ruling,

·        unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

·        asterisked terms are defined in section 195-1

·        unless otherwise specified, any reference to a taxable supply assumes that all of the requirements of section 9-5 are met

Subsection 75-5(1) provides that the margin scheme applies in working out the amount of GST on a taxable supply of real property that an entity makes by selling either a freehold interest in land or a unit or granting or selling a long term lease if that entity and the recipient have agreed in writing that the margin scheme is to apply.

The agreement must be made on or before the making of the supply, or within such further period as the Commissioner allows.

However subsection 75-5(2) provides that the margin scheme does not apply if the entity acquired the 'entire' freehold interest, unit or long term lease through a supply that was 'ineligible for the margin scheme'.

Subsection 75-5(3) lists the circumstances where a supply is ineligible for the margin scheme.

As you have acquired the interest in the Property as a GST-free supply of a going concern, paragraph 75-5(3)(e) is of relevance.

Paragraph 75-5(3)(e) provides that a supply is ineligible for the margin scheme if it is a supply in relation to which all of the following apply:

(i) you acquired the interest, unit or lease from an entity as, or as part of, a *supply of a going concern to you that was *GST-free under Subdivision 38-J;

(ii) the entity was *registered or *required to be registered, at the time of the acquisition;

(iii) the entity had acquired the entire interest, unit or lease through a taxable supply on which the GST was worked out without applying the margin scheme;...

To use the margin scheme, the entity that acquired property as a GST free going concern must not fulfil all three conditions listed under paragraph 75-5(3)(e) above.

If the supply made by the entity is eligible for the margin scheme, the applicable provision to calculate the margin for entities that acquired the property as a GST going concern is subsection 75-11(5).

On the facts provided, you did not acquire the Property through a supply that was ineligible for the margin scheme. The sale of your new residential premises will be eligible for the margin scheme.

The sale of your new residential premises is a taxable supply. On or before settlement, you and the purchaser will enter into a written agreement that the margin scheme is to apply to the sale. Therefore, you will be able to apply the margin scheme in working out the amount of GST on the sale of the taxable supply that you make.