Edited version of private advice

Authorisation Number: 1051992383226

Date of advice: 14 June 2022

Ruling

Subject: GST and margin scheme

Question

Are you eligible to apply the margin scheme to work out the GST payable on its sales of apartments at the Property?

Answer

Yes.

Question 2

If you are eligible to apply the margin scheme to work out the GST payable on its sales of apartments at the Property, can you use paragraph 75-11(5)(e) of the A New Tax System (Goods and Services Tax) Act 1999 to calculate the margin?

Answer 2

Yes.

This ruling applies for the following period:

14 June 20XX to 14 June 20XX

Relevant facts and circumstances

You are a residential property developer and a related entity of X.

In 20XX, a contract of sale was entered into between A as vendor and X (as named purchaser) in relation to the Property.

The purchase price under the Contract of Sale was $XXXXX, comprising a 10% deposit and the balance payable upon settlement. The purchaser was listed as X "and/or nominee".

On XXXXX, you were nominated as a substitute purchaser under the Contract of Sale through a nomination form.

The Australian Business Register discloses that the A has an ABN and has been registered for GST since 1 July 2000. You obtained an ABN in 20XX and became registered for GST.

Settlement of the Contract of Sale occurred in 20XX, by which time you had been nominated to take the titles. The Property was sold subject to lease and treated as a GST-free supply of a going concern.

You developed a multi-storey apartment building on the Property.

Previous acquisition of the Property

With respect to A's previous purchase of the Property, you understand that:

•         After 20XX, a contract of sale was entered into between B as vendor and A as purchaser for the sale of the Property;

•         A and B were related entities at the time of the transfer.

A copy of the Transfer of Land between A and B was provided.

Third party information indicates that the previous sale of the Property was not treated as a taxable supply on which the GST was worked out without applying the margin scheme.

Reasons for decision

All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 unless otherwise stated.

Question 1

An entity can apply the margin scheme to work out the amount of GST on a taxable supply of real property made by selling a freehold interest in land unless the entity acquired the entire freehold interest through a supply that was ineligible for the margin scheme.

Subsection 75-5(3) outlines when a supply is ineligible for the margin scheme.

Of relevance to this case is paragraph 75-5(3)(e) which provides that a supply is ineligible for the margin scheme if:

(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; or.....

You advised that you acquired the interest in the Property from the vendor through a supply of a going concern that was GST-free. The vendor was registered for GST at the time of your acquisition.

Finally, third party information indicates that the vendor did not acquire the interest in the Property through a taxable supply on which the GST was worked out without applying the margin scheme.

Therefore subparagraph 75-5(3)(e)(iii) is not satisfied and consequently paragraph 75-5(3)(e) does not apply.

As none of the other paragraphs in subsection 75-5(3) apply to your acquisition of the Property, your supply of an individual apartment developed from the Property is eligible for the margin scheme.

Question 2

Where you and the recipients of your supply of the individual apartments agree in writing that the margin scheme is to apply, you need to work out the correct way for calculating the margin. The margin is normally calculated under subsection 75-10(2), however, there are special rules for certain circumstances outlined in section 75-11.

Of relevance, subsection 75-11(5) may apply where real property was acquired as a GST-free going concern.

Subsection 75-11(5) applies where the following criteria are satisfied:

(a) you acquired the interest, unit or lease in question from an entity as, or as part of:

(i) a supply of a going concern to you that was GST-free under Subdivision 38-J; or

(ii) a supply to you that was GST-free under Subdivision 38-O; and

(b) the entity was registered or required to be registered, at the time of the acquisition; and

(c) none of subsections 75-11(1) to (4) applies.

You acquired the interest in the Property from an entity as a supply of a GST-free going concern, that entity was registered for GST at the time of your acquisition and none of subsections 75-11(1) to (4) apply.

In your circumstances, paragraph 75-11(5)(e) is therefore relevant to calculating the margin on your supply of the individual apartments developed from the Property as A acquired the Property after 1 July 20XX and was registered for GST at that time.

Under paragraph 75-11(5)(e) the margin for the supply you make is the amount by which the consideration for the supply exceeds:

(i) if the entity's acquisition was for consideration and you choose to apply an approved valuation to work out the margin for the supply - an approved valuation of the interest, unit or lease as at the day on which the entity had acquired it; or

(ii) if the entity's acquisition was for consideration and subparagraph (i) does not apply - that consideration; or

(iii) if the entity's acquisition was without consideration - the GST inclusive market value of the interest, unit or lease as at the time of the acquisition;....

As A's acquisition of the Property was for consideration, subparagraph 75-11(5)(e)(iii) does not apply. You are therefore able to apply either subparagraph 75-11(5)(e)(i) or (ii) to work out the margin on the sale of the individual apartments developed from the Property.

Goods and Services Tax Ruling GSTR 2006/8 Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000 (GSTR 2006/8) provides the Commissioner's view about how the margin scheme under Division 75 applies to supplies of real property acquired on or after 1 July 2000. It is therefore applicable to your situation.

As you have developed the Property into a number of individual apartments, section 75-15 will apply when working out the margin for your taxable supplies of those apartments. Paragraph 48 of GSTR 2006/8 states, in part, that:

In the case of subdivided land or a stratum unit, the effect of section 75-15 is that the consideration for the acquisition is the corresponding proportion of the consideration for the real property that you acquired.

Paragraphs 58 to 68 of GSTR 2006/8 provide discussion on apportionment methods that can be applied to ascertain the proportion of the purchase price that relates to a subdivided allotment or stratum unit.