Edited version of private advice

Authorisation Number: 1052115167538

Date of advice: 4 May 2023

Ruling

Subject: GST and the margin scheme

Question 1

Is your supply of the Property to the Purchaser eligible for the application of the margin scheme pursuant to Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Question 2

If the Commissioner agrees that your supply of the Property is eligible for the application of the margin scheme, is the margin scheme cost base the GST inclusive market value of the Property as at 1 July 20xx?

Answer

Yes.

This ruling applies for the following period:

4 May 20xx to 4 May 20xx

Relevant facts and circumstances

You are the trustee of a trust.

You are registered for GST.

You acquired the Property as a GST-free supply of a going concern.

You signed a contract with the Purchaser to sell the Property as a taxable supply with the GST payable to be calculated using the margin scheme.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 75

Reasons for decision

Question 1

Detailed reasoning

All legislative references contained in these reasons are to the GST Act.

Section 75-5 sets out the circumstances in which the margin scheme may be applied to a taxable supply of freehold interests in land.

Your supply of the freehold interests that make up the Property is a taxable supply under section 9- 5.

As you and the Purchaser have agreed in writing that the margin scheme is to apply to your taxable supply of freehold interests, subsection 75-5(1) is satisfied.

Subsection 75-5(1A) requires that the agreement to apply the margin scheme is made on or before the making of the supply. The Commissioner considers at paragraph 38 of 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) that '...for the sale of a freehold interest or stratum unit, the supply and the acquisition is made at settlement.'

As your written agreement to apply the margin scheme was made before settlement of the Property, subsection 75-5(1A) is satisfied.

Subsection 75-5(2) provides that the margin scheme does not apply if you acquired the entire freehold interest through a supply that was ineligible for the margin scheme.

Relevantly, your supply of the property will be ineligible for the margin scheme under paragraph 75-5(3)(e) if:

(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; and

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

(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.

Subparagraphs 75-5(3)(e)(i) and 75-5(3)(e)(ii) are satisfied in your case, as you acquired the Property as a GST-free supply under Subdivision 38-J, and the supplier was registered for GST at the time of the acquisition.

However, the supplier did not acquire the Property through a taxable supply. Therefore, subparagraph 75-5(3)(e)(iii) does not apply.

As none of the other exclusions under subsection 75-5(3) are applicable to your supply of the Property, the Property is not ineligible for the margin scheme.

It follows that your supply of the Property to the Purchaser is eligible for the application of the margin scheme pursuant to Division 75.

Question 2

Detailed reasoning

Section 75-11 provides the basis by which you may calculate the margin for a supply of real property, depending on your circumstances.

Subsection 75-11(5) provides the basis for calculating the margin where the property supplied by you was acquired as a GST-free going concern. Relevantly, subparagraph 75-11(5)(e)(iii) provides that where the supplier of the property to you acquired the property on or after 1 July 2000, had been registered for GST at the time of acquisition, and that acquisition was without consideration, then the margin is the GST inclusive market value of the interest at the time of that acquisition.

As such, the margin for your supply is the amount by which the consideration exceeds the GST inclusive market value of the Property as at 1 July 20xx under subparagraph 75-11(5)(e)(iii).