Edited version of private advice

Authorisation Number: 1052388391406

Date of advice: 30 April 2025

Ruling

Subject: GST and the margin scheme

Question 1

Is the margin scheme applicable to the sale of the property?

Answer 1

Yes. Provided you obtain the agreement of the purchaser in writing.

Question 2

Is the vendor required to give notice to the purchaser to withhold an amount of GST at settlement?

Answer 2

No. Where the purchaser acquires the property for a creditable purpose to any extent, there is no need to withhold payment

This ruling applies for the following periods:

From the tax period commencing 1 September 20XX to the tax period ending 31 May 20XX.

The scheme commenced on:

29 April 20XX.

Relevant facts and circumstances

You registered for GST from 20XX and entered a contract to purchase DDD Address (the property) in 20XX. The property had X residential dwellings on it. The contract did not have any GST in the price. Additionally, it was not farmland. It was not a sale of a going concern and the margin scheme did not apply. The acquisition settled in 20XX.

The previous owner, Z, was registered for GST from 20XX to 20XX.

The property acquisition settled on XX September 20XX for $X,XXX,XXX; at the time of settlement the vendor's GST registration was canceled.

You began developing the property intending to build X dwellings on the land.

You dug the foundations and installed services for the X dwellings.

Due to cash flow issues you decided to sell the property and recoup your investment.

The land has not been, and will not be, subdivided before the sale.

You engaged a solicitor to draft the sale contract but left the GST section blank.

You are seeking a private ruling about your eligibility to use the margin scheme so you can add the margin GST to the contract before settlement which is due in 20XX.

You provided copies of the acquisition contract, sale contract and some photos indicating the current state of the property site.

The sale contract sets out the particulars of sale. The particulars provide the property address and all fixtures are included. The purchaser is A, (the purchaser). The price is $Z. It also sets out the GST in this way:

GST (general condition B)

Subject to general condition B, the price includes GST (if any), unless the next box is checked

•                    GST (if any) must be paid in addition to the price if the box is checked

•                    This sale is a sale of land on which a 'farming business' is carried on which the parties consider meets the requirements of section 38-480 of the GST Act if the box ls checked

•                    This sale is a sale of a 'going concern' if the box is checked

•                    The margin scheme will be used to calculate GST if the box is checked

You provided an email from the solicitors for the purchaser indicating that amongst other things:

Statement from email supplied.

The special conditions are silent on any GST issues.

According to the Australian Business Register, the purchaser is registered for GST since XX XXX 20XX.

The purchaser is a developer looking to develop the property by completing the development you started.

General condition C is about GST.

Both your acquisition and your sale of the property were made at arms' length and not to or from any associated entities.

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

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

Taxation Administration Act 1953 Schedule 1, section 14-250

Taxation Administration Act 1953 Schedule 1, section 14-255

Reasons for decision

Question 1

Applicability of the margin scheme is set out in section 75-5. It says:

Applying the margin scheme

(1) The *margin scheme applies in working out the amount of GST on a *taxable supply of *real property that you make by:

(a) selling a freehold interest in land; or ...

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

(1A) The agreement must be made:

(a) on or before the making of the supply; or

(b) within such further period as the Commissioner allows.

Note: Refusing to allow, or allowing, a further period within which to make an agreement is a reviewable GST decision (see Subdivision 110-F in Schedule 1 to the Taxation Administration Act 1953).

(1B) A supply that you make to your *associate is taken for the purposes of subsection (1) to be a sale to your associate whether or not the supply is for *consideration.

(2) However, the *margin scheme does not apply if you acquired the entire freehold interest, *stratum unit or *long-term lease through a supply that was *ineligible for the margin scheme.

Note: If you acquired part of the interest, unit or lease through a supply that was ineligible for the margin scheme, you may have an increasing adjustment: see section 75-22.

(3) A supply is ineligible for the margin scheme if:

(a) it is a *taxable supply on which the GST was worked out without applying the *margin scheme; or

(b) it is a supply of a thing you acquired by *inheriting it from a deceased person, and the deceased person had acquired all of it through a supply that was ineligible for the margin scheme; or

(c) it is a supply in relation to which all of the following apply:

(i) you were a *member of a *GST group at the time you acquired the interest, unit or lease in question;

(ii) the entity from whom you acquired it was a member of the GST group at that time;

(iii) the last supply of the interest, unit or lease by an entity who was not (at the time of that supply) a member of the GST group to an entity who was (at that time) such a member was a supply that was ineligible for the margin scheme; or

(d) it is a supply in relation to which both of the following apply:

(i) you acquired the interest, unit or lease from the *joint venture operator of a *GST joint venture at a time when you were a *participant in the joint venture;

(ii) the joint venture operator had acquired the interest, unit or lease through a supply that was ineligible for the margin scheme; or

(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

(f) 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 to you that was GST-free under Subdivision 38-O;

(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

(g) it is a supply in relation to which all of the following apply:

(i) you acquired the interest, unit or lease from an entity who was your *associate, and who was registered or required to be registered, at the time of the acquisition;

(ii) the acquisition from your associate was without *consideration;

(iii) the supply by your associate was not a taxable supply;

(iv) your associate made the supply in the course or furtherance of an *enterprise that your associate *carried on;

(v) your associate had acquired the entire interest, unit or lease through a taxable supply on which the GST was worked out without applying the margin scheme.

(3A) Subparagraphs (3)(g)(iii) and (iv) do not apply if the acquisition from your *associate was not by means of a supply by your associate.

(4) A reference in paragraph (3)(b), (c) or (d) to a supply that was ineligible for the margin scheme is a reference to a supply:

(a) that was ineligible for the margin scheme because of one or more previous applications of subsection (3); or

(b) that would have been ineligible for the margin scheme for that reason if subsection (3) had been in force at all relevant times.

Based on the facts provided, the agreement is not subject to the margin scheme as the particulars show the box is not checked. The general condition 19.6 requires that this box must be checked for the parties to agree to the margin scheme.

You will need to obtain agreement from the purchaser in writing to apply the margin scheme because subsection 75-5(1) requires it. The agreement must be obtained before the date of settlement which is in 20XX. The agreement does not have to be made within the same document as the sale contract. You provided an email from the purchasers' solicitors indicating that should you receive a private ruling that the margin scheme can apply the contract will be amended to satisfy the agreement in writing provision.

Subsection 75-5(1A) does allow an opportunity to apply for the exercise of the Commissioner's discretion to allow more time to obtain the purchaser's agreement if the agreement is not made before settlement. Despite this, given time remains, it would be best to attempt to obtain the purchaser's agreement before settlement. Without their agreement the sale is a taxable supply as per our analysis below.

If we assume that you obtain the agreement before settlement, we need to consider the remaining relevant provisions in section 75-5. Subsection 75-5(2) indicates that the margin scheme does not apply if you acquired the entire freehold interest, through a supply that was ineligible for the margin scheme. Section 195-1 defines the term 'ineligible for the margin scheme' as having the meaning given by subsections 75-5(3) and (4).

Applying the fact that you acquired the properties as input taxed residential property, none of the ineligibility criteria in subsections 75-5(3) and (4) apply as:

•                     it was not a taxable supply to you on which the GST was worked out without application of the margin scheme,

•                     you did not acquire from an associate,

•                     it was not an inheritance,

•                     it was not a supply from or to a GST group or joint venture,

•                     a supply of a going concern and you did not acquire the property as any other GST-free supply.

As none of the above features are present in your case, the particular circumstances in section 75-11 will also not apply.

The margin will be calculated in accordance with subsection 75-10:

•                     If a taxable supply of real property is under the margin scheme, the amount of GST on the supply is 1/11 of the margin for the supply.

Subject to subsection (3) and section 75-11, the margin for the supply is the amount by which the consideration for the supply exceeds the consideration for your acquisition of the interest, unit or lease in question.

Subject to section 75-11, if:

•                     the circumstances specified in an item in the second column of the table in this subsection apply to the supply; and

•                     an approved valuation of the freehold interest, stratum unit or long - term lease, as at the day specified in the corresponding item in the third column of the table, has been made;

•                     the margin for the supply is the amount by which the consideration for the supply exceeds that valuation of the interest, unit or lease.

•                     Subsection 75-10(3) provides a table for setting out when valuations may be used to determine the margin. None of the circumstances in the table apply in this case.

As a result, subsections 75-10(1) and (2) will be applied. Subsection 75-10(1) requires that the supply of the property must be a taxable supply in order to apply the margin.

Section 9-5 sets out what is a taxable supply:

(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 with the indirect tax zone; and

(d)           you are *registered, or *required to be registered.

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

You are supplying the property for the consideration of $X,XXX,XXX meeting paragraph 9-5(a).

You are a developer, and it is not in contest that you made the supply in the course of that enterprise satisfying paragraph 9-5(b).

The property is located within the indirect tax zone as the land is situated in Australia, satisfying paragraph 9-5(c).

You are registered for GST, satisfying paragraph 9-5(d).

The sale is not GST-free under any provision. The sale contract does not indicate that it was a going concern or farmland. The property is not input taxed as the residences had been demolished.

Accordingly, the sale is a taxable supply on completion.

The margin under subsection 75-10(1) is 1/11 of the margin between $H and $J which is -$K. Please note if the contract amount of $X does not include adjustments at settlement, these also must be considered for the margin calculation. We have assumed that those adjustments will not change the negative margin.

The margin, where negative, is zero per 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 at paragraph 46:

46.          If the consideration for the acquisition is equal to or greater than the consideration for the supply, then the margin for the supply is zero.

Question 2

The 'GST at settlement' conditions at page A of the sale contract pursuant to section 14-255 of Schedule 1 of the Taxation Administration Act 1953, provides for options and states that whichever option is not crossed out is the applicable one. The option that is not crossed out states that:

Statement from email supplied.

'Potential residential land' is defined term in section 195-1 which states

"potential residential land" means land that it is permissible to use for residential purposes, but that does not contain any buildings that are residential premises.

This definition needs to be read in conjunction with section 14-255 of Schedule 1 of the Taxation Administration Act 1953 (TAA):

14-255 Notification by suppliers of residential premises etc.

(1)           You must not make a *supply, by way of sale or long-term lease (within the meaning of the *GST Act), of *residential premises or of *potential residential land to another entity unless, before making the supply, you have given to the other entity a written notice stating:

(a)           whether the other entity will be required to make a payment under section 14-250 in relation to the supply; and

(b)           if the other entity will be required to make such a payment in relation to the supply:

(i)            the name and *ABN of the entity that is liable to pay the *GST on the supply; and

(ii)           the amount that the other entity will be required to pay to the Commissioner under section 14 - 250 in relation to the supply; and

(iii)          when the other entity will be required to pay that amount; and

(iv)          if some or all of the *consideration for the supply will not be expressed as an amount of *money--the *GST inclusive market value of so much of the consideration as will not be expressed as an amount of money; and

(v)           such other matters as are specified in the regulations.

(2)           However, subsection(1):

(a)           does not apply to a supply of *commercial residential premises; and

(b)           does not apply to a supply of *potential residential land to another entity if the other entity:

(i)            is registered (within the meaning of the *GST Act); and

(ii)           acquires the land for a *creditable purpose.

(3)           To avoid doubt, a failure to comply with subsection(1) does not affect the other entity's obligation to make a payment under section 14-250.

Creditable acquisition is defined in section 11-5:

What is a creditable acquisition?

You make a creditable acquisition if:

(a)           you acquire anything solely or partly for a *creditable purpose; and

(b)           the supply of the thing to you is a *taxable supply; and

(c)           you provide, or are liable to provide, *consideration for the supply; and

(d)           you are *registered, or *required to be registered.

Creditable purpose is a defined in section 11-15:

Meaning of creditable purpose

(1)           You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.

(2)           However, you do not acquire the thing for a creditable purpose to the extent that:

(a)           the acquisition relates to making supplies that would be *input taxed; or

(b)           the acquisition is of a private or domestic nature.

...

Applying these provisions to your circumstances, the purchaser is acquiring the premises in the course of their enterprise as a developer to continue the development you started. They are registered for GST and providing consideration for the supply of the property to them. The supply is a taxable supply but is also subject to the margin scheme. Acquisitions under the margin scheme are not creditable acquisitions, but as the purchaser intends to develop the property into new residential premises, the acquisition of the property is for a creditable purpose. Support for this position is provided in Law Companion Ruling LCR 2018/1Purchaser's obligation to pay an amount for GST on taxable supplies of certain real property at paragraph 20:

A purchaser who is registered and purchases potential residential land under the margin scheme is not making a creditable acquisition. However, they may still be acquiring the property for a creditable purpose. If so they will not have a GST withholding obligation in those circumstances.

The facts indicate that the property had residences on it when you purchased it but since then you have demolished them and have dug the footings and installed supply with the object of developing the land to build X units. The photos you provided reflect this fact.

On this basis, it is clear that the property is potential residential land. However, subsection 14-255(2) of the TAA makes clear that subsection 14-255(1) of the TAA does not apply where a sale of potential residential land is made to a purchaser who acquires for a creditable purpose to any extent.

Conclusion

You do not need to advise the purchaser of a withholding amount where the purchaser notifies you they are acquiring for a creditable purpose.