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Edited version of private advice
Authorisation Number: 1051663310660
Date of advice: 23 April 2020
Ruling
Subject: GST and the margin scheme
Question
Will the Entity be eligible to work out the GST payable on the sale of the developed lots of land to buyers using the margin scheme pursuant to subsection 75-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
Yes.
Relevant facts and circumstances
· The Entity is registered for the goods and services tax (GST).
· The Entity carries on property development enterprise activities, including the sale of freehold interests in developed land lots for consideration.
· The ruling application is in relation to the specified land located in Australia and includes any buildings or other improvements on that land (Property).
· The Entity acquired the entire freehold interest in the Property from a Seller.
· The different fractional freehold interests in the Property were acquired in separate transactions as an input taxed supply, a taxable supply on which GST was worked out applying the margin scheme, and a GST-free supply of a going concern under Subdivision 38-J.
· The Seller and the Entity are not related entities.
· The Seller was not a GST group member.
· The Seller was not an operator of a GST joint venture.
· The Seller acquired the entire freehold interest in the Property from Entity X
· The sale by Entity X to the Seller was not a taxable supply.
· The Entity will be selling the lots developed from the Property to buyers.
· The sale of a developed lot by the Entity will be a taxable supply.
· The Entity intends to apply the margin scheme to the sale of the developed lots by agreeing in writing with each buyer that the GST on the sale of the relevant developed lots will be calculated under the margin scheme as required under subsection 75-5(1) of the GST Act.
· The Entity and each buyer will agree in writing to apply the margin scheme to the sale of the developed lot in the relevant contract for sale.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 Subdivision 38-J
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)
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); and
· all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act.
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:
(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) 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.
Subsection 75-5(3) 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) 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;...
On the facts provided, we consider that the acquisition of the fractional interests that together comprise the entire freehold interest in the Property were not made through a supply that was ineligible for the margin scheme.
Consequently, the taxable sales of the developed lots by the Entity to a buyer will not be ineligible for the margin scheme under subsections 75-5(2) and 75-5(3). The sale of the developed lots from the Property by the Entity will be eligible for the margin scheme.
The Entity will be eligible to work out the GST payable on the sale of the developed lots of land to buyers using the margin scheme pursuant to subsection 75-5(1), where on or before settlement, the parties have agreed in writing that the margin scheme is to apply.