Edited version of private advice

Authorisation Number: 1051971970278

Date of advice: 12 April 2022

Ruling

Subject:GST and calculating the margin scheme

Question

Is the margin on your taxable supplies of new residential premises located in the indirect tax zone calculated pursuant to subsection 75-11(7) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

This ruling applies for the following periods:

1 July 20XX to 30 June 20XX

1 July 20XX to 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

X (You) are carrying on an enterprise of residential property development and construction and have an ABN XX XXX XXX XXX.

You have been registered for GST since DD/MM/YYYY.

In YYYY your parent X purchased a property located in the indirect tax zone.

Your parent has not been registered or required to be registered for GST since 1 July 2000.

In MM/YYYY the State Trustee managing your parent's affairs transferred the property title for X into your name. No money was exchanged between you and your parent for the transfer of the property title.

A Title Searchproduced on DD/MM/YYYY shows you as the Registered Sole Proprietor of X on DD/MM/YYYY.

In MM/YYYY you lodged an application with the Council for the construction of X dwellings on a lot and a front fence exceeding X metres in height. The permit was granted in MM/YYYY.

In MM/YYYY you demolished the existing dwelling on the property.

Between MM/YYYY and MM/YYYY, you constructed X units on the property and then subdivided the land into Property A and Property B.

In MM/YYYY the units were placed on the market for sale.

On DD/MM/YYYY you entered into a Contract of sale of land for the sale of Property B. The property settled on DD/MM/YYYY. The sale price was $X.

On DD/MM/YYYY you entered into a Contract of sale of land for the saleof Property A. The property settled on DD/MM/YYYY. The sale price was $X.

Before making the supplies, you and the recipients of the supplies agreed in writing that the margin scheme would apply.

Your sales of the units were taxable supplies of new residential premises.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 section 75-10

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

A New Tax System (Goods and Services Tax) Act 1999 section 75-15

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Income Tax Assessment Act 1936 section 318

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Division 75 allows an entity to calculate the GST payable on the supply of land under the margin scheme where the relevant requirements 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 you make by:

•                    selling a freehold interest in land; or

•                    selling a stratum unit; or

•                    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, 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. In accordance with your circumstances outlined above, no provision in section 75-5(3) operates to make the supply of the relevant properties by you ineligible for the margin scheme.

Under the margin scheme, the GST payable on the supply of real property is 1/11th of the margin for the supply. The margin for the supply is the amount by which the consideration for the supply exceeds the consideration for the acquisition of the real property unless subsection 75-10(3) or section 75-11 applies.

Subsection 75-10(3) operates subject to section 75-11. Section 75-11 considers how to calculate margins for supplies of real property in particular circumstances.

Given the facts of this case, subsections 75-11(1) through subsection 75-11(5) are not relevant. However, subsections 75-11(6) and 75-11(7) deal with the 'margin for supply of real property acquired from associate'.

An 'associate' is defined in section 195-1 as having the meaning given by section 318 of the Income Tax Assessment Act 1936 (ITAA 1936). An associate of a natural person includes a relative, such as a parent or a lineal descendent, as outlined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997).

In this case, your parent X is an associate of yours for GST purposes.

Subsection 75-11(6) applies if, among other things, you acquired the interest, unit or lease in question from an 'associate' who was registered or required to be registered, at the time of the acquisition. As discussed above, your parent was neither registered, nor required to be registered at the time you acquired the property. Therefore subsection 75-11(6) does not apply in your case.

Subsection 75-11(7) applies in situations where you acquired the interest, unit or lease in question from an entity who was your associate at the time of the acquisition and none of the prior subsections of section 75-11 apply.

In your case:

•                    you acquired the Property from an associate (your parent); and

•                    subsections 75-11(1) to 75-11(6) do not apply.

You therefore meet the requirements of subsection 75-11(7).

In MM/YYYY the State Trustee managing your parent's affairs transferred the property title for X into your name. A Title Searchproduced on DD/MM/YYYY shows you as the Sole Registered Proprietor of X on DD/MM/YYYY.

Subsection 75-11(7) provides that if your acquisition was made on or after 1 July 2000, the margin for the supply you make is the amount by which the consideration for the supply exceeds the GST inclusive market value of the interest, unit or lease at the time of the acquisition.

Therefore, pursuant to subsection 75-11(7), the margin for the supply you make is the amount by which the consideration for your supply exceeds the GST inclusive market value of the property as at DD/MM/YYYY (the date you acquired the property).

The term 'GST inclusive market value' is defined in section 195-1.

GST inclusive market value of:

a)            consideration in connection with a supply; or

b)            a thing, or a supply or acquisition of a thing;

means the market value of the consideration or thing, without any discount for any amount of GST or luxury car tax payable on the supply.

In this case, the property located at X was subdivided after it was acquired from your associate (your parent). In such situations, the effect of 75-15 is that the consideration for the acquisition (of each subdivided lot being sold) is the corresponding proportion of the market value of the property when the property was transferred from your parent to you.