Edited version of private advice

Authorisation Number: 1052344950687

Date of advice: 30 January 2025

Ruling

Subject: GST - eligibility to use the margin scheme

Question

Can you apply the margin scheme to the sale of vacant land pursuant to subsection 75-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the margin scheme can be applied to calculate GST on the sale of the vacant land.

This ruling applies for the following period:

DD MMM 20YY to DD MMM 20YY

The scheme commenced on:

DD MMM 20YY

Relevant facts and circumstances

You are registered for GST.

You own vacant land (3 Lots) that you are selling.

You acquired the parent property before 1 July 2000.

You later subdivided this property into 3 separate Lots.

Two separate valuations have been completed for each Lot, for the purpose of setting a reserve price in the prospective sales.

The reserve price was set by you for the sale of each of the 3 Lots.

Offers have been presented to you by 3 separate purchasers to acquire the 3 Lots under the margin scheme.

The sale contracts for Lots 1, 2 and 3 state that the purchasers agree that the sale of the Lots are taxable supplies and that the margin scheme will apply:

All 3 contracts will be signed and executed by you before making the sale.

All 3 contracts detail that the supply is a taxable supply of new residential land as defined in the GST Act.

Each sale contract detailed an agreement to enter into a margin scheme.

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 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

Reasons for decision

Subsection 75-5(1) of the GST Act provides that you may apply the margin scheme in working out the amount of GST on a taxable supply of real property 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.

As you are selling a freehold interest in land, we must consider whether the sale of the 3 Lots is a taxable supply. Section 9-5 of the GST Act provides that you make a taxable supply if:

(a)           you make the supply for consideration; and

(b)           the supply is made in the course or furtherance of an enterprise that you carry on; and

(c)           the supply is connected to the indirect tax zone (Australia); and

(d)           you are registered or required to be registered for GST.

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

In this case, you will satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act as your supply of the Lots is intended to be for consideration, made in the course of an enterprise, it is connected with the indirect tax zone, and you are registered for GST.

The supply of the 3 Lots is neither GST-free nor input taxed, therefore it would be a taxable supply under section 9-5 of the GST Act.

We must consider whether there was an agreement in writing to apply the margin scheme.

Subsection 75-5(1A) of the GST Act provides that the agreement must be made:

(a)           on or before the making of the supply, or(b) within such further period as the Commissioner allows.

Under the margin scheme, the GST payable on the supply of certain real property is 1/11^th of the margin on the supply. Subsection 75-10(2) of the GST Act provides that the margin for the supply is the difference between the consideration for the supply and the consideration for the acquisition of the interest, unit or lease unless subsection 75-10(3) of the GST Act or section 75-11 of the GST Act applies.

The 3 sales contracts satisfy the requirements of subsection 75-5(1A) of the GST Act as the agreements will be entered into on or before the making of the supply.

However, under subsection 75-5(2) of the GST Act you will not be able to use the margin scheme if you acquired the entire freehold interest, stratum unit or long-term lease through a supply that was ineligible for the margin scheme.

Under paragraph 75-5(3)(a) of the GST Act, a supply is ineligible for the margin scheme if it is a taxable supply to you on which the GST was worked out without applying the margin scheme. That is, you cannot use the margin scheme if when you first purchased the property the sale to you was fully taxable and the margin scheme was not used. From the relevant facts, the parent property was not taxable to you since it was acquired before 1 July 2000.

Further elements under subsection 75-5(3) of the GST Act detail circumstances where a supply is ineligible for the margin scheme, however those elements do not apply to your circumstances based on the characteristics of the transactions and the date at which the parent property was acquired.

You acquired the vacant land by way of a resumption notice. The acquisition occurred before the start of the GST Act enacted on 1 July 2000. Therefore, you are eligible to apply the margin scheme on your taxable supply of the vacant land. You will be entitled to use the margin scheme to calculate the GST payable on the sale of the vacant land.

Conclusion

You are eligible to apply the margin scheme on the sale of the vacant land as it satisfies the requirements set out in section 75-5 of the GST Act