Edited version of private advice

Authorisation Number: 1051646358733

Date of advice: 13 March 2020

Ruling

Subject: GST margin scheme on sale of new property

Question

Will you be able to use 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 the sale of new residential premises?

Answer

Yes.

Section 75-1 of the GST Act allows you to use the margin scheme for GST purposes.

Subsection 75-5(1) of the GST Act states:

(1)  The margin scheme applies in working out the amount of GST on a taxable supply of real property that you make by:

(a)    selling either a freehold interest in land; or

(b)    selling a stratum unit or granting; or

(c)    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.

Based on the facts that you have provided, none of the circumstances listed in subsection 75-5(3) apply.

As such you are eligible to apply the margin scheme under section 75-5 of the GST Act when you sell the newly developed residential premises.

Your only further requirement is to ensure that a written agreement exists between you and the purchaser on or before settlement or within such further period as the Commissioner determines.

This ruling applies for the following period:

1 January 20XX - 30 June 20XX

The scheme commences on:

1 January 20XX

Relevant facts and circumstances

You carry on a property development business and are registered for goods and services tax (GST).

You purchased three residential properties (collectively referred to as 'Properties').

The vendors of the properties were not registered for GST at settlement date.

You acquired the Properties as an input-taxed supply of residential premises (i.e. the supply of the Properties to you was not a taxable supply).

You did not acquire the property that you sold:

·         from a supplier who made a taxable supply but did not work out the GST payable on the property using the margin scheme

·         by inheritance from a person who would not have been able to apply the margin scheme

·         as a member of a GST group from another member of the group who would not have been able to apply the margin scheme

·         as a participant in a GST joint venture from the joint venture operator who would not have been able to apply the margin scheme

·         as a GST-free going concern or farmland from a supplier who previously purchased the property in which GST was worked out without using the margin scheme

·         for no payment from an associate and the associate had purchased the property in which GST was worked out without using the margin scheme.

You intend to demolish the existing properties, subdivide the land, and subsequently develop new residential units for sale.

Your supply of the newly constructed residential houses on the land will be a freehold interest in land.

You plan to sell the new completed residential houses under the margin scheme.

Relevant legislative provisions

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