Edited version of private advice

Authorisation Number: 1052327960594

Date of advice: 15 November 2024

Ruling

Subject: GST and margin scheme

Question 1

Is the sale of Lot B by you to the Purchaser eligible for the margin scheme?

Answer

The sale of Lot B is outside the scope of the GST Act.

Question 2

Is the sale of Lot A to the Purchaser eligible for the margin scheme?

Answer

Yes, to the extent that the sale of Lot B is a taxable supply.

This ruling applies for the following period:

From dd/mm/yyyy to dd/mm/yyyy

Relevant facts and circumstances

You are the owner of the land situated at a specified address in Australia which comprises separately titled Lot A and Lot B (Property).

You entered into a put and call option agreement on a specified date to sell the Property to the Purchaser.

The Purchaser is a third-party and not related to you. The Purchaser is acquiring the Property for development, subdivision, and sale of the subdivided lots.

You have not yet entered into a contract of sale with the Purchaser. When you enter into a contract of sale, you and the Purchaser will agree in writing that the margin scheme is to apply to the sale of the Property.

You have owned Lot A since before 1 July 2000. You are carrying on a farming business on Lot A as a sole trader.

Lot A also contains a residential dwelling in which you have been residing.

Lot B was initially purchased jointly by you and your associate before 1 July 2000. You and your associate are conduction a farming business on Lot B as partners in a partnership (Partnership). The Partnership has been registered for GST since 1 July 2000.

The Partnership also conducts its farming business on Lot A.

Lot B is not used by you in the course of your farming business as a sole trader.

On a specified date, after 1 July 2000, Lot A (owned solely by you) and Lot B (jointly owned by you and your associate) were reconfigured and amalgamated. You became the owner of the reconfigured property as agreed by a private agreement between you and your associate, for no consideration.

The reconfiguration and amalgamation was completed on or about a specified date. At the time of amalgamation neither you nor your associate were registered or required to be registered for GST.

Following the reconfiguration, the reconfigured property was subdivided again into two separately titled lots which now comprises the Property the subject of the sale to the Purchaser and which is now owned by you, namely, Lot A and Lot B.

You have been registered for GST from a specified date as a sole trader.

There is no lease agreement in place between you and the Partnership in respect of Lot A and/or Lot B. This is a private arrangement whereby both Lot A and Lot B are used in the Partnership's farming business for no consideration.

Lot A and Lot B have not been treated as Partnership assets in the Partnership's balance sheet and books of accounts. The Partnership has claimed deductions in relation to the Property for expenses such as insurance and weeding. The Property is exempt from land tax as it is farmland.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-80

A New Tax System (Goods and Services Tax) Act 1999 Division 72

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

Reasons for decision

Question 1

Is the sale of Lot B by you to the Purchaser eligible for the margin scheme?

Summary

You are the owner of Lot B. You have not been using Lot B in the course of your farming business as a sole trader.

Further you have not leased Lot B to the Partnership. You allow the Partnership to use Lot B in its farming business under a private arrangement for no consideration. The Partnership is registered for GST. Therefore, Division 72 the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) does not apply to treat the supply of the right to use Lot B by you to the Partnership as a taxable supply.

Accordingly, the sale of Lot B by you is outside the scope of the GST Act and thus the margin scheme provisions are not relevant for consideration.

Detailed reasoning

Subsection 75-5(1) of the GST Act provides that an entity can apply the margin scheme in working out the amount of GST on a taxable supply of real property that an entity makes by:

(a)  selling a freehold interest in land; or

(b)  selling a stratum unit; or

(c)   granting or selling a long term lease;

if the entity and the recipient of the supply have agreed in writing that the margin scheme is to apply.

The margin scheme will only be relevant for consideration if the sale of Lot B is a taxable supply.

Section 9-5 of the GST Act provides that an entity makes a taxable supply if:

(a)  the entity makes the supply for consideration

(b)  the supply is in the course or furtherance of an enterprise that entity carries on

(c)   the supply is connected with Australia, and

(d)  the entity is registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Based on the information provided, Lot B is used by the Partnership in the course of its farming enterprise, however, it is not treated as an asset of the Partnership.

You are not using Lot B in the course of carrying on your farming business or any other enterprise. Therefore, you are not making a taxable supply when you sell Lot B as the requirement of paragraph 9-5(b) of the GST Act is not met.

Further, as the Partnership is registered for GST, Division 72 of the GST Act does not apply to treat the supply of the right to use Lot B by you to the Partnership for no consideration, as a taxable supply.

As the supply of Lot B by you is not a taxable supply, the margin scheme is not relevant for consideration.

The sale of Lot B by you is outside the scope of the GST Act.

Question 2

Is the sale of Lot A by you to the Purchaser eligible for the margin scheme?

Summary

The sale of Lot A by you is a mixed supply as it has separately identifiable taxable and non-taxable parts.

The sale of the taxable part of Lot A is eligible for the margin scheme.

Detailed reasoning

Whilst the Partnership has been carrying on its farming business on Lot A, Lot A has not been treated as a Partnership asset.

You are registered for GST and have been using Lot A in the course of your farming business as a sole trader. Lot A also contains your private residence in which you have been residing.

The sale of Lot A by you is a mixed supply as it has separately identifiable parts. The sale of the part of Lot A which has been used by you in your farming business is a taxable supply as it meets all the requirements of section 9-5 of the GST Act. However, the sale of the part of Lot A which contains your private residence is a sale of a private asset and does not meet the requirements of paragraph 9-5(b) of the GST Act, and therefore is not a taxable supply.

Section 9-80 of the GST Act provides that, where a supply is partly taxable and partly non-taxable, the value of the supply is to be apportioned between the taxable and non-taxable parts of the supply.

The sale price of Lot A needs to be apportioned between the taxable and non-taxable parts on a reasonable basis.

Goods and Services Tax Ruling GSTR 2001/8 Goods and services tax: Apportioning the consideration for a supply that includes taxable and non-taxable parts provides methods and examples that you may use to help you work out how to apportion the consideration for a supply that contains separately identifiable taxable and non-taxable parts.

Subsection 75-5(3) of the GST Act lists the circumstances where a supply of real property is ineligible for the margin scheme. None of the circumstances listed in subsection 75-5(3) apply to make the sale of the taxable part of Lot A ineligible for the margin scheme.

Therefore, you can apply the margin scheme to the sale of the taxable part of Lot A provided you and the Purchaser agree in writing that the margin scheme is to apply to the sale.