Edited version of private advice

Authorisation Number: 1052409248935

Date of advice: 20 June 2025

Ruling

Subject: Margin scheme and deceased estate

Question 1

Will you be eligible to apply the margin scheme under Division 75 to the sale of the new units to be constructed at the property?

Answer

Yes, the Commissioner of Taxation (the Commissioner) considers that pursuant to Division 75 of the GST Act, when you sell each of the new units you will be eligible to apply the margin scheme in working out the amount of GST payable on each supply.

Question 2

If the answer to question 1 is 'yes', can you choose to apply an approved valuation to work out the margin for the supply under subparagraph 75-11(5)(d)(i) of the GST Act with the applicable date of valuation being as at 1 July 2000?

Answer

No, you cannot choose to apply an approved valuation to work out the margin for the supply under subparagraph 75-11(5)(d)(i) of the GST Act. The marginfor the supply you make is to be worked out under subparagraph 75-11(5)(e)(iii) of the GST Act as follows:

The amount by which the consideration for the supply of each unit exceeds the GST inclusive market value of the property, in relation to the unit, as at DDMMYYY (the time of the vendor's acquisition of the property).

Question 3

If the answer to question 2 is 'yes', will the Valuation Certificate & Report you have provided satisfy the requirements of an approved valuation pursuant to section 75-35 of the GST Act?

Answer

Not applicable

This ruling applies for the following periods:

DDMMYYY to DDMMYYY

The scheme commenced on:

DDMMYYY

Relevant facts and circumstances

You are a property developer. You are registered for GST from DDMMYYY.

On DDMMYYY, you entered into the contract of sale of real estate (the sale contract) with the vendor to purchase the property located at the property for $XX and settlement occurred on DDMMYYY.

The vendor is a deceased estate of Person A. Person A had acquired the property prior to 1 July 2000 before the introduction of GST.

The property was supplied to you as a GST-free supply of a going concern as indicated on the sale contract.

You and the vendor are unrelated parties and not associates or members of the same GST group or participants in a GST joint venture.

You will agree in writing with the purchaser of each unit that the margin scheme is to apply.

The property was supplied to you subject to the leases.

You acquired the property to develop residential units and retail units for sale (the development).

You confirm as a fact that a taxable supply will be made for the sale of each of the residential units as 'new residential premises' as how the term is defined in section 40-75 of the GST Act.

You confirm as a fact that a taxable supply will be made for the sale of the retail units.

The price list for the project shows prices for the units ranges from $XX to $XX.

Construction of the development commenced on DDMMYYY with an expected completion date in DDMMYYY.

You engaged the valuer to prepare a valuation certificate and report of the property with a retrospective assessment as at 1 July 2000.

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 Division 75

A New Tax System (Goods and Services Tax) Act 1999 Subdivision 38-J

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

Reasons for decision

In this ruling, unless otherwise stated,

   • all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

   • all legislative terms of the GST Act are defined in section 195-1 of the GST Act

   • all reference materials published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website ato.gov.au

Question 1

Will you be eligible to apply the margin scheme under Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) to the sale of the new units to be constructed at the property?

Summary

Yes, the Commissioner of Taxation (the Commissioner) considers that pursuant to Division 75 of the GST Act, when you sell each of the new units you will be eligible to apply the margin scheme in working out the amount of GST payable on each supply.

Detailed reasoning

Division 75 provides for the application of the margin scheme.

The provisions of section 75-5 include:

   (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

      (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.

   (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.

In this case,

You are developing X residential units and X retail units for sale.

You confirm as a fact that a taxable supply will be made in relation to the sale of each of the residential units and the retail units once developed.

You will agree in writing with the purchaser of each unit that the margin scheme is to apply.

Accordingly, the margin scheme is available for you to work out the GST payable on each supply of the units This is unless subsections 75-5(2) and (3) apply to make the supply ineligible for the margin scheme.

Subsection 75-5(2) states that the marginscheme does not apply if an entity acquired the entire freehold interest, stratum unit or long-term lease through a supply that was ineligible for the marginscheme.

Subsection 75-5(3) outlines particular circumstances where a supply would be ineligible for the margin scheme. Generally, an entity cannot use the margin scheme if when the entity first purchased the property, the sale to the entity was fully taxable and the margin scheme was not used.

As you acquired the property as part of a going concern, it is relevant to consider paragraph 75-5(3)(e) which states that a supply is ineligible for the margin schemeif 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;

In applying paragraph 75-5(3)(e) to the facts, we have considered the following:

   (i) You purchased the property from the vendor entity (a deceased estate).

You purchased the property through the GST-free supply of a going concern. Subparagraph 75-5(3)(e)(i) is applicable.

   (i) Your purchase of the property settled on DDMMYYY at which time the vendor entity was registered for GST. Subparagraph 75-5(3)(e)(ii) is applicable.

   (ii) On Title, the vendor entity is registered as the proprietor of the property on DDMMYYY.

The vendor is a deceased estate of Person A. Person A passed away on DDMMYYY.

We consider the vendor entity would not have acquired the property through a taxable supply. Subparagraph 75-5(3)(e)(iii) is not applicable.

From the above considerations, we note that not all of the provisions specified in paragraph 75-5(3)(e) are applicable and therefore your supply of the units will not be ineligible for the margin scheme.

Further, we consider none of the other exclusions under subsection 75-5(3) are applicable to make your supply of the units ineligible for the margin scheme.

In turn, this means subsections 75-5(2) and (3) will not apply to exclude eligibility for the margin scheme to be applied when you make a supply of the units.

In conclusion, the Commissioner determines that when you sell the new units located at the property, you will be eligible to apply the margin scheme in working out the amount of GST payable on each supply under Division 75.

Question 2

If the answer to question 1 is 'yes', can you choose to apply an approved valuation to work out the margin for the supply under subparagraph 75-11(5)(d)(i) of the GST Act with the applicable date of valuation being as at 1 July 2000?

Summary

No, you cannot choose to apply an approved valuation to work out the margin for the supply under subparagraph 75-11(5)(d)(i). We consider the facts of your case indicate that subparagraphs/subparagraph 75-11(5)(a)(i), (b) and (c) will be satisfied. Accordingly, subparagraph 75-11(5)(e)(iii) will apply and the marginfor the supply you make is the amount by which the consideration for the supply of each unit exceeds the GST inclusive market value of the property, in relation to the unit, as at DDMMYYY.

Detailed reasoning

Having established that you will be eligible to apply the margin scheme in working out the amount of GST payable on each supply of the new units, the next issue to consider is the margin for calculating the GST payable amount.

Subsection 75-10(1) provides that 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.

Under subsection 75-10(2), the margin for the supply is the amount by which the consideration for the supply exceeds the consideration for the acquisition of the real property (subject to subsection 75-10(3) and section 75-11).

We consider the circumstances set out in the table in subsection 75-10(3) do not apply to the facts of your case, accordingly it is relevant to refer to section 75-11. Section 75-11 provides methodologies for the calculation of the margin for supplies of real property in particular circumstances.

Based on the facts, we consider the circumstances specified in subparagraph 75-11(5) are relevant to your situation, which states that if:

   (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 (1) to (4) applies;

   the marginfor the supply you make is the amount by which the consideration for the supply exceeds:

   (d) ...

   (e) if that entity had acquired the interest, unit or lease on or after 1 July 2000 and had been registered or required to be registered at the time of the acquisition:

      (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; or

   (f) ...

We consider the facts of your case indicate that paragraphs/subparagraph 75-11(5)(a)(i), (b) and (c) will be satisfied. In considering paragraph 75-11(5)(e):

   (1) The vendor acquired the property on 18 July 2016 (that is, acquired as part of the deceased estate of Person A. vendor is the legal personal representatives of Person A)

   (2) The vendor was registered for GST from 22 December 2015 to 1 October 2023

Accordingly, we consider subparagraph 75-11(5)(e)(iii) will apply and the marginfor the supply you make is the amount by which the considerationfor the supply of each unit exceeds the GST inclusive market value of the property, in relation to the unit, as at 18 July 2016.

Section 195-1 defines GST inclusive market value of

   (a) consideration in connection with a supply; or

   (b) a thing, or an acquisition of a thing;

   means the market value of the consideration or thing, without any discount for any amount of GST or luxury car tax payable on the supply.

You will need to apportion the market value of the property to ascertain the part of the market value that relates to each of the new units using a fair and reasonable method of apportionment.

Question 3

If the answer to question 2 is 'yes', will the valuation certificate and report you have provided satisfy the requirements of an approved valuation pursuant to section 75-35 of the GST Act?

Summary

Not applicable