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Edited version of private advice
Authorisation Number: 1051606804718
Date of advice: 14 November 2019
Ruling
Subject: GST and eligibility to use the margin scheme
Question
Are you eligible to apply the margin scheme in accordance with Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you sell property?
Answer
Yes
Relevant facts and circumstances
You are registered for GST effective from dd/mm/yyyy.
You entered into two contracts on dd/mm/yyyy for the purchase of adjoining properties (collectively referred to as the 'Properties').
The Properties settled on dd/mm/yyyy.
As at the date of settlement, the Properties contained existing residential dwellings.
The vendor of the Property was 'ABC Pty Ltd' (Vendor).
The Vendor was not registered for GST as at the settlement date.
The transaction was originally classified as a taxable supply. However following a review conducted by the Australian Taxation Office, the transaction was determined to be an input taxed supply pursuant to section 40-65 of the GST Act.
Your intention was to demolish the existing residential dwellings on the Properties and construct new residential premises for the purpose of sale. However due to economic conditions you have decided to sell the Properties.
Following your acquisition of the Properties in yyyy you demolished the existing residential dwellings in mm/yyyy.
You have not conducted any other works on the Properties other than the removal of rubbish.
You will sell the Properties as vacant land.
You have not done any other works on the Properties to date and do not intend to do any works on the property prior to the impending sale.
You did not inherit the Properties
You were not a member of a GST group at the time the Properties were acquired.
You were not a participant in a GST joint venture at the time the properties were acquired.
You did not acquire the properties as a GST-free going concern.
You did not acquire the properties as a GST-free supply of farmland.
You did not acquire the properties from an associate.
You have entered into an agreement engaging a real estate agency for the purpose of selling the Properties at auction.
You have also engaged a solicitor who has commenced drafting the contract for the impending sale.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999
Division 75
Subsection 75-5(1)
Subsection 75-5(2)
Subsection 75-5(3)
Reasons for decision
Note: In this reasoning, unless otherwise stated,
· all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)
· reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au
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 you make by selling either a freehold interest in land or a unit or granting or selling a long term lease if you 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 you 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.
Given the facts of this case none of the circumstances listed in subsection 75-5(3) will apply.
As such you are eligible to apply the margin scheme when you sell the Properties.
In this case you acquired the Properties as an input taxed supply of residential premises from a supplier/vendor that was not registered for GST (i.e. the supply of the Properties to you was not a taxable supply).
The margin scheme will apply to the sale or the Properties if you and the recipient of the supply of the Properties have agreed in writing that the margin scheme is to apply. Please note that the agreement must be made on or before the making of the supply (typically settlement date) or within such further period as the Commissioner determines.