Private ruling: GST treatment of sale of the real property
Published: November 2014
Ruling period: Not applicable
Date scheme commenced: Not applicable

Ruling: Q1: Is X (Receivers and Managers Appointed) entitled to apply the margin scheme on the sale of the property known as Y, under Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes. X is entitled to apply the margin scheme on the sale of the property known as Y. Please refer to the reasons for decision for additional information. | Q2: Can X use the amount of $ Z provided as consideration for the acquisition of the property in 2002 for the calculation of GST on the supply of the property under the margin scheme? | A2: Yes.

Relevant facts and circumstances: • X is registered for goods and services tax (GST) since 2002 and carries on an enterprise of property development. • X charged and mortgaged the real property located at Y. • X has defaulted in its payment obligations under the loan facility agreement and the bank has enforced the charge and mortgage by appointing the Receivers and Managers. • The Receivers and Managers are selling the property and their agent has advised the following in relation to the application for a ruling: - This ruling and the attached documents have been prepared in accordance with the information supplied by the Receivers and Managers. - Receivers and Managers have issued a declaration stating that the information provided for the preparation of this document and any attached documents is true and correct. - The agent has been authorised by the Receivers and Managers to lodge this private ruling application. • The property was amalgamated by X from few adjoining parcels of land. • X has continuously owned the property since it was purchased around 2002. • The agent did not provide copies of the sale contracts in relation to the acquisition of the property by X. However, according to the settlement statement the sale price for all the lots including the adjustments was $Z. • According to the settlement statement, GST is not included in the sale price. • The agent has provided copies of the transfer of titles of these seven parcels of land. • All the lots of land were acquired by individuals within the vendor's family before 1 July 2000. • The agent did not provide any details of whether the vendors of the land were registered for GST or required to be registered for GST at the time of the sale of the land.

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 vendors of the property, had acquired the parcels of land (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 vendor's family acquired the property before 1 July 2000. They have sold the property to X in 2002 without including GST in the sale price. This indicates that the sale of the property to X was not a taxable supply. Therefore, it is considered that the property is eligible for the use of the margin scheme provided X and the purchaser of the property have agreed in writing to apply the margin scheme. Please note that the above decision has been considered based on the information provided to us and in the absence of the contract of sale. The issue of whether the vendors were required to be registered for GST in 2002 when they sold the property to X has not been determined. You contend that according to the settlement statement the sale price did not include any GST and the X did not claim GST credit for the acquisition of the property. Therefore, the sale of the property to X was not a taxable supply. Although we have considered your contention in making this decision, you may be required to amend your assessment in relation to the sale of this property if a compliance action is taken on the activities of the vendors and the vendors are found to be required to be registered for GST. Under subsection 75-10(2) of the GST Act, the margin for the supply is the amount by which the consideration for the supply exceeds the consideration for the acquisition for the real property. The consideration for the supply or acquisition should take into account of adjustments on settlement that are commonly made for rates and land tax. According to the settlement statement, the property was acquired for $ Z after taking into account for land tax and rates. Therefore, it is considered that the acquisition amount of $ Z may be used to calculate the GST amount on the supply of the property under the margin scheme.