Private ruling: GAT and margin scheme cost base
Date of advice: 19 October 2017
Published: March 2018

Ruling: Q1: By apportioning the land on the basis of the revised total built out area and actual gross floor area for each stage (Stage Lot GFA), have you correctly worked out the margin* for your supplies of land for stages X and Y of the Development? | A1: Yes, provided the revised total built out area and Stage Lot GFA represent the final figures for the whole Development. | Q2: Can you work out the margin on the same basis for future stage releases? | A2: Yes, provided the revised total built out area and Stage Lot GFA represent the final figures for the whole Development.

Relevant facts and circumstances: ● You are registered for GST. ● Entity B is registered for GST. ● You have entered into a development lease agreement with Entity B. ● Under the initial agreement, you agreed to transfer a Superlot to Entity B on a stage by stage basis (stage lots) upon Entity B developing the relevant stage. The total gross floor area (GFA) of buildings to be constructed on the Superlot (total built out area) was expected to be XXX,XXX m² . ● Due to a number of factors, the total built out area has increased significantly over time to presently being YYY,YYY m². 1. You have applied, and will apply, the margin scheme in working out the GST on your transfer of land to Entity B using the value of the Superlot as at 1 July 2000. 2. For three earlier stages, you worked out the value of these lots by apportioning the value of the Superlot on the basis of the initial expected GFA for the relevant stage lot relative to the expected total built out area. 3. For another two earlier stages, you worked out the value of these lots by apportioning the value of the Superlot on the basis of the completed GFA for the relevant stage lot relative to the then revised total built out area. 4. For stages X and Y, you worked out the value of the stage lots by apportioning the value of the Superlot on the basis of the actual completed GFA for the relevant lot relative to the revised total built out area (presently yyy,yyy m²).

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 75-10 | A New Tax System (Goods and Services Tax) Act 1999 Subsection 75-10(1) | A New Tax System (Goods and Services Tax) Act 1999 Subsection 75-10(2) and | A New Tax System (Goods and Services Tax) Act 1999 Subsection 75-10(3)

Reasons for decision: Summary: Provided the revised total built out area and Stage Lot GFA represents the final figures for the whole Development, by apportioning the land on the basis of the revised total built out area and actual completed Stage Lot GFA, you have correctly worked out the margin for your supplies of land for stages X and Y of the Development. | Detailed Reasoning - Detailed reasoning: Under the margin scheme, the GST payable on the supply of real property is 1/11th of the margin for the supply. 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 unless subsection 75-10(3) or section 75-11 applies. Subsection 75-10(3) applies if an approved valuation has been made and: ● the circumstances in section 75-11 do not apply; and ● you acquired (or in some cases held) the real property before 1 July 2000. Under subsection 75-10(3), the margin for the supply is the difference between the consideration for the supply and the amount determined by the relevant approved valuation. In the context of subdivisions, if land that is part of the original broadacres is used for public purposes, such as, roads, parklands or utilities (‘lost land’), the valuation of the entire broadacres is apportioned to the total number of subdivided lots, so that the sum of the apportioned amounts equals the valuation for the broadacres (including the ‘lost land’). When the margin scheme applies to the supply but there is no valuation, or a valuation is not an approved valuation under section 75-35, then the margin for the supply is calculated under subsection 75-10(2), provided section 75-11 does not apply. If subsection 75-10(3) requires you to obtain an approved valuation, the real property that you value is the interest, unit or lease that is in existence at the valuation date. This will not always be the real property that is supplied. Often the real property that is supplied was not in existence at the valuation date. Examples of this are: ● land that is acquired as broadacres and is later subdivided and sold; and ● land on which strata units are built. If the real property that is supplied was not in existence at the valuation date but was, for example, subdivided from the interest that was in existence at that date, the valuation must be made as follows: (a) a valuation of the interest, unit or lease in existence at the valuation date is undertaken; and (b) the valuation of that interest, unit or lease is then apportioned on any fair and reasonable basis, to ascertain the part of the valuation that relates to the interest, unit or lease that you supplied. It is not necessary for the apportionment to be undertaken by a professional valuer if the professional valuation method is used to value the real property. For each stage completed so far, you have apportioned the land on the basis of total built out area and gross floor area relative to the use of the land for the particular stage (Stage Lot GFA). For three of the stages you have used the expected total built out area and Stage Lots GFA in the initial masterplan. However, due to changes to this masterplan, the built out area and Stage Lots GFA has changed extensively from what was initially agreed and for two other stages you have used the then revised expected built out area and actual completed Stage Lot GFA at the completion of the relevant stage. Is the apportionment method fair and reasonable? Paragraphs 58 to 68 of Goods and Services Tax Ruling GSTR 2006/8, Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000 (GSTR 2006/8), explain the Commissioner’s view about fair and reasonable methods of apportionment. Of relevance to this case are paragraphs 58 and 61 as reproduced below: 58. To ascertain the proportion of the purchase price that relates to the subdivided allotment or stratum unit, you may use any fair and reasonable method of apportionment. The method of apportionment used must result in the sum of the proportionate amount of the purchase price that relates to each subdivided allotment or stratum unit equalling in total, the actual consideration for the acquisition. You cannot change the method of apportionment after sales of allotments or stratum units have been made unless the changed method is applied to calculate the margin for all the sales. … 61. In some circumstances, you may use a combination of these or other fair and reasonable methods of apportionment. An example of where this may provide a fair and reasonable apportionment is a multi-staged development… At paragraph 106 in Goods and Services Tax Ruling, GSTR 2001/8, Goods and services tax: Apportioning the consideration for a supply that includes taxable and non-taxable parts , in considering what is a reasonable method to allocate the consideration for a mixed supply, we conclude that in some cases, it is reasonable to use the relative floor area of the property being supplied. To make an allocation on this basis, the relative price of different types of floor space (for example, floor space in residential, retail and industrial property are often priced differently) need to be considered. That is, if the value per square metre is variable, then the consideration can be reasonably apportioned on a basis of each area and its relative value. External features, such as the value of recreational areas may also be taken into account. Furthermore at paragraph 47 of Goods and Services Ruling GSTR 2000/21, Goods and services tax: the margin scheme for supplies of real property held prior to 1 July 2000 , it is acknowledged that in a multistage development, the cost for the land could be allocated on the basis of total saleable area in each development stage. In your case, applying the same above principles to ascertain the value that relates to each stage for margin scheme purposes would, prima facie, be fair and reasonable. However, it is still expected that the sum of the proportionate amount of the value that relates to each stage will equal in total the approved valuation for the Superlot. This would have been the case if the total built out area and Stage Lots GFA based on the initial masterplan had remained constant and had been used for apportionment over the life of the Development. However, because the Stage Lots GFA (and consequently the total build out area) has extensively changed overtime, as mentioned in paragraph 58 of GSTR 2006/8, it needs to be determined whether you have in fact changed the method of apportionment over different stages. In this case, the method (use of build out area and Stage Lots GFA) itself has not changed. Rather different figures for the total built out area and Stage lots GFA have been used in applying the method. As a consequence, the valuation for some stages are distorted and as a result the value that relates to each stage will not equal (emphasis added) in total the approved valuation for the Superlot. It follows from the above that, had the correct figures been used, we would consider the method to be fair and reasonable in the circumstances. In this Instance, the final total built out area and Stage Lots GFA would provide a conceptual image of the actual sizes and mixed use class of the lots being supplied at each stage and as such would be the correct figures to use. Accordingly, if the revised total built out area and the Stage Lots GFA represent the final figures for the whole development, we would consider the method used by you to be fair and reasonable. However, if the revised figures do not represent the final figures, the same identified issues with using different total built out area and Stage Lots GFA at different stages of the development, as discussed above, would arise and therefore the method would not be fair and reasonable. If a total built out area and Stage Lots GFA different from what would be the final figures for the whole development are used at different stages of the development, a fair and reasonable method of apportionment would be to recalculate the rate per square meter for each successive stage progressively taking into account the Stage Lots GFA already applied to previous stages.

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