Private ruling: GST and using the margin scheme and the valuation method
Published: November 2014

Ruling: Q1: Are the purchaser and the vendor entitled to use the margin scheme to calculate the goods and services tax payable on the sale of the property? | A1: Yes. | Q2: If the margin scheme does apply, can the margin for the supply be calculated using an approved valuation as per Item 1 or 2 in the table contained in subsection 75-10(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A2: The margin can be calculated using an approved valuation as per Item 2 in the table contained in subsection 10(3) of the GST Act. | Q3: Will the valuation shown in the Valuation and Rate Notice issued by the municipal council satisfy the requirements under Method 3 of MSV 2009/1? | A3: Yes. The Valuation and Rate Notice issued by the municipal council can be used as per method 3 of MSV 2009/1. Please refer to the reasons for decision.

Relevant facts and circumstances: • The application for a private ruling is made by the Liquidators as joint and several liquidators of the entity. • In making this application, the Liquidators have relied on documents held on the entity's files; documents and information contained in property valuation and inspection reports commissioned by the Liquidators; and information provided by the entity's account. • The entity is registered for GST and became inactive since the appointment of Liquidators. • The entity acquired a residential property prior to 1 July 2000. • The entity was registered as the proprietor of the property prior to 1 July 2000. • A planning permit was issued for the property allowing for the development of X apartments in a two level building. • This planning permit was amended by an order of the court to allow for the construction of Y apartments in a three-storey building. The existing dwelling was demolished and development work commenced after 1 July 2000. • The entity entered into a contract of sale with a purchaser to sell the property and the contract was amended to reduce the sale price, changing the settlement date and completing the margin scheme box in the contract of sale with the words 'margin scheme'. • The settlement of the property was completed and at the time of settlement, the property consisted of a partly constructed three level apartment building with X incomplete apartments and a third level slab. • The capital improvement value of the property was $XXX at the council's valuation date as per Valuation and Rate Notice issued by the City Council. This date is before the date the entity registered for GST.

Relevant legislative provisions: 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

Reasons for decision: Summary: Under section 75-5 of the GST Act, you may choose to use the margin scheme to work out the GST payable on the supply if you make a taxable supply of real property be selling a freehold interest in land; or selling stratum unit; or granting or selling a long-term lease. However, the margin scheme does not apply if you acquired the entire freehold interest through a supply that was ineligible for the margin scheme. Therefore, it is necessary to determine whether the vendor of the property, had acquired the property through a supply that was ineligible for the margin scheme. Paragraph 75-5(3) of the GST Act provides that a supply is ineligible for the margin scheme if it is a taxable supply on which the GST was worked out without applying the margin scheme. Based on the information provided, the entity acquired the property which was a residential property before 1 July 2000. The supply of the property to the entity was not a taxable supply as it was acquired by the entity prior to the GST regime. Therefore, the property is eligible for the use of the margin scheme. Furthermore, the vendor and the purchaser of the property have agreed in writing to apply the margin scheme as per the contract of sale. Therefore, the vendor and the purchaser of the property are entitled to use the margin scheme to calculate the GST payable on the sale of the property. Subsection 75-10(3) of the GST Act applies where the real property was acquired before 1 July 2000 and section 75-11 of the GST Act does not apply. Under subsection 75-10(3) of the GST Act, the margin for the supply is the amount by which the consideration for the supply exceeds the approved valuation of that real property at the date specified in the table in this subsection. Usually, the valuation date under subsection 75-10(3) of the GST Act is 1 July 2000. However, item 2 in the table in subsection 75-10(3) of the GST Act provides that where the supplier acquired the interest in the real property before 1 July 2000 but does not become registered or required to be registered for GST until after 1 July 2000, the valuation date is the earlier of either the date of effect of the suppliers' registration or the day on which the supplier applied for registration. In this case, the entity registered for GST after 1 July 2000 and from the information provided, the entity was not required to be registered for GST before the actual date of registration. Therefore, the valuation date for the margin scheme purposes will be on the day when the entity registered for GST. From 1 December 2005, there are three valuation methods than can be used to value real property as at the valuation date. These methods, as prescribed in A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2005/3 (MSV 2005/3), are: • a valuation of the market value of the real property at the valuation date determined in writing by a professional valuer using the purchase price in a contract entered into before 1 July 2000 by parties dealing at arm's length, or • using the most recent value as determined before the valuation date by or on behalf of a State or Territory Government Department for rating or land tax purposes. In this case, the property has been valued by the City Council at their valuation date for rates and charges. According to MSV 2005/3, you are eligible to use a rate notice to determine the value of the real property as long as the value on the notice was determined before your valuation date. The valuation date in this case was the date when the entity registered for GST which is after the valuation date of the City Council. Therefore, the amount valued by the City Council at their valuation date can be used to calculate the GST payable under the margin scheme.