Private ruling: GST and the margin scheme
Published: June 2014

Ruling: Q1: Does the Australian Taxation Office (ATO) need to carry out its own valuation for the purpose of calculating the GST payable using the 'Margin Scheme' if the vendor has obtained a valuation? | A1: Yes, the ATO will need to use a professional valuer to undertake a valuation or review the valuation if you want the ATO to confirm whether the valuation is an approved valuation and whether the value established is correct. For a valuation by a valuer to be an approved valuation for the purposes of applying the margin scheme, that valuation must be made in accordance with the requirements in A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2009/1 (MSV 2009/1). However, the ATO is not a professional valuer and cannot confirm whether the valuation obtained by the vendor is correct or is an approved valuation. For example, the ATO cannot confirm that the following requirements of MSV 2009/1 have been met: • requirement that the valuation is made in a manner that is not contrary to the professional standards recognised in Australia for the making of real property valuations; and • requirement that the market value of the property at the valuation date has been determined. To do that, the ATO will need to use a professional valuer to undertake a valuation or review the work. The valuer charges us a fee, which the law allows us to pass on to you.

Relevant facts and circumstances: • You are carrying on an enterprise and are registered for the goods and services tax (GST). • You have purchased a property (Property) under the margin scheme after 1 March 2010. • The vendor was registered for the GST. • The vendor obtained a valuation of the Property as at the relevant date, for the purpose of calculating the GST payable using the margin scheme. • The valuation was carried out by a "Registered Valuer". • You have also obtained a valuation of the Property. • The two valuations (one from the vendor and one from the purchaser) are within 10% of each other.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 75-35. | Taxation Administration Act 1953 (TAA) section 359-40.

Reasons for decision: Summary: Section 75-35 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states: | Detailed Reasoning - 75-35 Approved valuations: (1) The Commissioner may, by legislative instrument, determine in writing requirements for making valuations for the purpose of this Division. (2) A valuation made in accordance with those requirements is an approved valuation . The Commissioner has made a determination, A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2009/1 (MSV 2009/1), specifying the requirements for the purpose of applying the margin scheme under Division 75 of the GST Act for supplies of real property made on or after 1 March 2010. In this case the property was supplied after 1 March 2010. A valuation made in accordance with the requirements in MSV 2009/1 is an approved valuation. The requirements set out by the Commissioner for an approved valuation are given under four methods. Of these, the appropriate method for you to use is Method 1. The requirements under Method 1 of MSV 2009/1, relevant to this case, are as follows: (1) the valuer must be a * professional valuer ; (2) the valuation must be in writing; (3) the valuation must determine the market value of the interest, unit or lease at the valuation date; (4) the valuation must be made in a manner that is not contrary to the professional standards recognised in Australia for the making of real property valuations; (5) the valuation must include a signed certificate which specifies: (a) full description of the property being valued; (b) the applicable valuation date; (c) the date the valuer provides the valuation to the supplier; (d) the market value of the property at the valuation date; (e) the valuation approach and the valuation calculation; and (f) the name and qualifications of the valuer; The term 'professional valuer' is defined in paragraph 24 of MSV 2009/1 as: (1) a person registered or licensed to carry out real property valuations under a Commonwealth, a State or a Territory law; or (2) a person who carries on a business as a valuer in a State or a Territory where that person is not required to be licensed or registered to carry on a business as a valuer, or (3) a person who is: (a) a member of the Australian Property Institute and accredited as a Certified Practicing Valuer; or (b) a member of the Royal Institution of Chartered Surveyors and accredited as a Chartered Valuation Surveyor; or (c) a member of the Australian Valuers Institute and accredited as a Certified Practicing Valuer. In this case, we need to assess whether the valuation report is an approved valuation and is, therefore, correct for use in calculating the vendor's GST liability under the margin scheme. To do such assessment, it is necessary for the Commissioner to establish that the valuation was made in a manner not contrary to the professional standards recognised in Australia for the making of real property valuations (requirement (4) under Method 1 in MSV 2009/1 above). The Commissioner will also need to establish that the correct market value of the interest at the valuation date has been determined (requirement (3) under Method 1 in MSV 2009/1 above). For the Commissioner to assess the correctness of the valuation, the Commissioner will need to engage a professional valuer to undertake a valuation or review the work. The valuer charges us a fee, which the law allows us to pass on to you in accordance with section 359-40 of the Taxation Administration Act 1953 (TAA). This is despite the fact that you may have two independent valuations which are within 10% of each other and both are done by a professional valuer. The fact sheet "Private rulings and valuations - working out and confirming the value of a thing for tax purposes" (NAT 71796) is available on our website at www.ato.gov.au. A copy of the fact sheet is enclosed for your consideration.