Private ruling: GST and property
Published: November 2013

Ruling: Q1: Is the sale of the property under the contract of sale a supply to which the margin scheme can be applied in accordance with section 75-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes, the sale of the property under the contract of sale is a supply to which the margin scheme can be applied in accordance with section 75-5 of GST Act. | Q2: Should the margin be calculated as the amount by which the consideration for the supply of the property exceeds the value of the property as at 1 July 2000 in accordance with item 3 of the table in subsection 75-10(3) of the GST Act? | A2: Yes, the margin should be calculated as the amount by which the consideration for the supply of the property exceeds the value of the property as at 1 July 2000 in accordance with item 3 of the table in subsection 75-10(3) of the GST Act.

Relevant facts and circumstances: You are a State Government Statutory Authority. You are the result of amalgamations of various State Government Statutory Authorities over a period of years. Your various predecessors were the registered proprietors of a number of parcels of land; the various dispositions of title made to you were for no consideration. All of the vesting orders were made by the Orders in Council made in the relevant State Government Gazette. You are registered for goods and services tax (GST) post 1 July 2000. You entered into a contract of sale to sell a property with the purchaser post 1 July 2000. This property was owned by one of the previous State Government Statutory Authority pre 1 July 2000. The contract of sale provides that the margin scheme does not apply to the calculation of GST payable under the contract. A few days before the settlement, you entered into a deed of variation with the purchaser. It provides that the parties agree to the submission of an application for a private ruling in order to confirm whether the margin scheme can be applied to the sale of the property. It also provides that in the event its usage is confirmed, the parties agree that the supply of the property under the contract of sale is one to which the margin scheme applies. The purchaser has been registered for GST since post 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 Subdivision 9-C. | A New Tax System (Goods and Services Tax) Act 1999 Division 75. | A New Tax System (Goods and Services Tax) Act 1999 Subsection 75-5(1). | A New Tax System (Goods and Services Tax) Act 1999 Subsection 75-5(1A). | A New Tax System (Goods and Services Tax) Act 1999 Subsection 75-5(2). | A New Tax System (Goods and Services Tax) Act 1999 Subsection 75-5(3). | A New Tax System (Goods and Services Tax) Act 1999 Subsection 75-10(3). | A New Tax System (Goods and Services Tax) Act 1999 Subsection 75-5(1) item 3.

Reasons for decision: Summary: Question 1 Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), an entity makes a taxable supply if: · it makes the supply for consideration · the supply is made in the course or furtherance of an enterprise that it carries on · the supply is connected with Australia and · the entity is registered or required to be registered. However, a supply is not a taxable supply to the extent that it is GST-free or input taxed. From the facts provided, we consider that you make a taxable supply to the purchaser under section 9-5 of the GST Act when you sell the property to the purchaser. Generally, under Subdivision 9-C of the GST Act, the GST payable on a taxable supply is 1/11 of the price of the supply However, Division 75 of the GST Act allows a supplier of a taxable supply of real property and the recipient of the taxable supply to use the margin scheme in working out the amount of GST payable on the supply. | Detailed Reasoning - Conditions for applying the margin scheme: To apply the margin scheme all of the following conditions must be satisfied: · Agreed in writing Both the supplier and the recipient of the supply have agreed in writing that the margin scheme is to apply. The agreement must be made on or before the supply or within such further periods as the Commissioner allows according to subsections 75-5(1) and 75-5(1A) of the GST Act. In your case, a deed of variation was entered by both parties whereby upon confirmation by the ATO that margin scheme can be applied to the sale of the property, the parties agree that the supply of the property under the contract of sale is one to which the margin scheme applies. Consequently, you have agreed in writing to apply the margin scheme. This agreement is made on or before the making of the supply. · Eligibility for the margin scheme The margin scheme does not apply if the supplier acquired the entire freehold interest through a supply that was ineligible for the margin scheme according to subsection 75-5(2) of the GST Act. Subsection 75-5(3) of the GST Act explains when a supply is ineligible for the margin scheme. Of relevance to your circumstances is paragraph 75-5(3)(a) of the GST Act which states: (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 *An asterisk denotes a defined term in the GST Act. In your case, the property was vested on you by the Orders in Council made in the relevant State Government Gazette for no consideration. Goods and services tax ruling GSTR 2006/9 (GSTR 2006/9) discusses in paragraphs 81 to 91 the vesting in government authorities which are empowered by legislation to compulsorily acquire an interest in real property. The effect of compulsory acquisition of the real property is that every registered and unregistered interest in the property is extinguished, and each person who formerly held such an interest has that holding converted into a claim for compensation. In particular, paragraph 84 of GSTR 2006/9 provides: Mere acceptance by an owner of an amount of compensation payable on the compulsory acquisition does not provide a sufficient nexus between the land which passes and the means by which it passes. The fact that the owner does not dispute the acquisition is not an activity that effects the supply of the land. Even if the owner agrees to the terms of the acquisition and the amount of compensation, the land is acquired by operation of the statute, upon publication of the acquisition notice, not by an action taken by the landowner. In your case, the vesting extinguished all the interest and rights of your predecessors and they do not receive any compensation or do anything to cause the vesting to take place. As such, we consider that the extinguishment of the interest and rights by your predecessors on the property was not a supply made by them. Consequently, you did not acquire the property through a supply or taxable supply made by your predecessors. We noted that you are the result of amalgamations of various State Government Statutory authorities over a period of years. Goods and services tax determination GSTD 2006/4 (GSTD 2006/4) at paragraphs 3 to 6 provide: 3. In some circumstances, real property that was acquired by one government department or agency is vested in another government department or agency. This may occur as part of a transfer of departmental responsibilities. 4. In item 4, the words 'Commonwealth', 'a State' or 'a Territory' are not limited to a specific government entity but encompass all the departments and agencies that fall within the ambit of the term. 5. This means that where real property is held before 1 July 2000 by a government department or agency and on or after 1 July 2000 that property is vested in another department or agency that is part of the Commonwealth or the same State or Territory, the real property has been held by the 'Commonwealth, a State or a Territory' for the entire period. 6. This is consistent with paragraph 6.108 of the Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998. That paragraph confirms that, where the Commonwealth, a State or a Territory holds unimproved land at 1 July 2000 which is subsequently improved and sold, GST is to be payable under the margin scheme on the difference between the selling price and the unimproved value of the land at the date of sale. In your case, the property was owned by a previous State Government Statutory Authority before 1 July 1995. Consequently, though the property has been held by various State Government Statutory Authorities over the years, the property has been held by the State for the entire period according to paragraph 5 of GSTD 2006/4. For GST purposes, as you did not acquire the property on 1 July 2000 through a supply or taxable supply, you can apply the margin scheme to the taxable supply of the property you make to the purchaser as both parties have agreed in writing that the margin scheme is to apply. | Detailed Reasoning - Question 2: Goods and services tax ruling GSTR 2006/7 (GSTR 2006/7) explains how the margin scheme applies to a supply of real property made on or after 1 December 2005 that was acquired or held before 1 July 2000. Paragraphs 89-91 of GSTR 2006/7 have been reproduced below: | Detailed Reasoning - Commonwealth, a State or a Territory: 89. Whether a supply is made by the Commonwealth, a State or a Territory is relevant for establishing which item in the table contained in subsection 75-10(3) applies to the supply. The item in the table then establishes the valuation date. 90. If the Commonwealth, State or Territory supplies land on which there are no improvements, the supply is GST-free under subsection 38-445(1) provided the land has not been previously supplied as a GST-free supply under this section. 91. If the land was held before 1 July 2000 and there were improvements on the land as at 1 July 2000, then the Commonwealth, a State or a Territory can choose to apply the margin scheme to calculate the GST payable on the supply. Item 3 in the table in subsection 75-10(3) applies in these circumstances. However, item 4 in the table in subsection 75-10(3) applies if the land has no improvements as at 1 July 2000 but there are improvements subsequently made to the land before it is supplied. The valuation of the land at the date of supply is undertaken, as if there were no improvements on the land at the date of supply. Paragraph 91 of GSTR 2006/7 provides that if the land was held before 1 July 2000 and there were improvements on the land as at 1 July 2000 item 3 in the table in subsection 75-10(3) of the GST Act applies. Under those circumstances the valuation date is 1 July 2000. Therefore, in this case, as the property was held before 1 July 2000 and there were improvements on the land as at 1 July 2000, then item 3 in the table in subsection 75-10(3) of the GST Act will apply and the valuation date is 1 July 2000. Consequently, the margin should be calculated as the amount by which the consideration for the supply of the property exceeds the value of the property as at 1 July 2000 in accordance with item 3 of the table in subsection 75-10(3) of the GST Act.