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Edited version of private advice
Authorisation Number: 1051599764665
Date of advice: 26 February 2020
Ruling
Subject: GST and the margin scheme
Question
Will the entity be entitled to use the margin scheme under Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to calculate the GST payable on the future taxable sales of the newly constructed dwellings and offices?
Answer
No.
This ruling applies from the specified date.
Relevant facts and circumstances
You are an entity and you are currently registered for the goods and services tax (GST).
You are the registered proprietor on title of the specified property situated in Australia.
You acquired the property as part of a GST-free supply of a going concern.
The previous owner may have acquired the property through a taxable supply on which GST was worked out without using the margin scheme.
You plan to subdivide the property and construct dwellings and offices, for sale to third parties.
You will be making a taxable supply when you sell the developed lots.
You intend to apply the margin scheme on the sales of the developed lots if the sales are eligible for the margin scheme.
If the sale of a developed lot is eligible for the margin scheme, you and the purchaser will agree in writing that the margin scheme applies. You and the purchaser will enter into the written agreement on or before settlement.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 38-325
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)(a)
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 section 195-1
Reasons for decision
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:
a) selling a freehold interest in land; or
b) selling a stratum unit; or
c) 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.
However, subsection 75-5(2) of the GST Act provides that the margin scheme does not apply if you acquired the entire freehold interest, stratum unit or long term lease through a supply that was ineligible for the margin scheme.
Margin scheme eligibility
Subsection 75-5(3) of the GST Act lists the circumstances in which you acquire the entire freehold interest, stratum unit or long term lease through a supply that was ineligible for the margin scheme.
Relevantly, paragraph 75-5(3)(e) of the GST Act provides that a supply is 'ineligible for the margin scheme', if it is a supply in relation to which all of the following apply and states:
(e) 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;...
If you want to use the margin scheme when selling property that you purchased as part of a GST-free going concern, you need to know if the previous owner was eligible to use the margin scheme.
Based on the facts, paragraph 75-5(3)(e) of the GST Act applies and the future sales of the newly constructed dwellings and offices on the specified property would be ineligible for the margin scheme.
Consequently, you will not be entitled to use the margin scheme to calculate the GST payable on those future taxable sales.