Private ruling: GST and margin scheme
Published: May 2013

Ruling: Q1: Is the revised apportionment method that you have used to determine the consideration for the taxable part of the supply of the specified properties considered to be reasonable? | A1: Yes. | Q2: If the revised apportionment method is deemed to be reasonable, are your calculations of the margin for the supply of the properties correct? | A2: Yes.


Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 7-1 | A New Tax System (Goods and Services Tax) Act 1999 s ection 9-5 | A New Tax System (Goods and Services Tax) Act 1999 s ection 40-65 | 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(1) | A New Tax System (Goods and Services Tax) Act 1999 subsection 75-10(2) | 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 75-11(1) | A New Tax System (Goods and Services Tax) Act 1999 subsection 75-11(2)

Reasons for decision: Summary: Based on the circumstances of your case we consider that the revised apportionment method that you have used to determine the consideration for the taxable part of the supply of the properties is reasonable. Based on the information that you have provided, as the consideration for the supply of the residential properties B and commercial properties does not exceed an approved valuation of the interest in those properties as at 1 July 2000, there is no GST payable on the supply of the taxable part. | Detailed Reasoning - Detailed reasoning: Section 7-1 of the GST Act provides that GST is payable on a taxable supply. A supply is a taxable supply if it satisfies all the requirements of section 9-5 of the GST Act. Section 9-5 of the GST Act states: You make a taxable supply if: (a) you make the supply for *consideration; and (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and (c) the supply is *connected with Australia; and (d) you are *registered, or *required to be registered. However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. (* Denotes a term defined in section 195-1 of the GST Act.) As explained in the earlier private ruling: · The sale of the residential properties A is an input taxed supply pursuant to subsection 40-65(1) of the GST Act. · The sale of the residential properties B is a taxable supply pursuant to section 9-5 of the GST Act. · Based on the information that you have provided in relation to the commercial properties, the supply is a taxable supply pursuant to section 9-5 of the GST Act. · The supply of the properties is a mixed supply as the supply contains separately identifiable taxable and non-taxable parts. The sale of the residential properties A is input taxed whilst the sale of the residential properties B and commercial properties is a taxable supply. · You can use the margin scheme to calculate the GST payable on the sale of the residential properties B and commercial properties. · The margin for the supply of the residential properties B and commercial properties is the amount by which the consideration for the supply of those properties exceeds an approved valuation of the interest in those properties as at 1 July 2000 (subsection 75-11(2) and subsection 75-10(3) of the GST Act). Apportioning the price to calculate the GST payable on the sale of the residential properties B and commercial properties Goods and Services Tax Ruling GSTR 2001/8 (GSTR 2001/8) deals with apportioning the consideration for a supply that includes taxable and non-taxable parts. GSTR 2001/8 provides that the value of the taxable part of the supply has to be determined by having regard to the facts and circumstances and taking a particular commonsense approach. Paragraphs 92 to 95 of GSTR 2001/8 state: | Detailed Reasoning - Reasonable methods of apportionment: 92. Where, as in the case of supplies covered by section 9-75, there is no legislative provision specifying a basis for apportionment, you may use any reasonable method to apportion consideration to the separately identifiable taxable part of a mixed supply. However, the apportionment must be supportable by the facts in the particular circumstances and be undertaken as a matter of practical commonsense. 93. What is a reasonable method of apportioning the consideration for a mixed supply depends on the circumstances of each case. In some cases, there will be only one reasonable method you may use. 94. Depending on your circumstances, you may use a direct or indirect method when apportioning the consideration for a mixed supply. 95. The method you choose should be based on a consideration of all the circumstances and not because it gives you a particular result. … Based on the information that you have provided and the circumstances of the sale of the properties taken as a whole, we consider that the revised apportionment method used to determine the price of the taxable portion of the supply of the properties is fair and reasonable. As stated in the earlier private ruling, the margin for the supply of the residential properties B and commercial properties is the amount by which the consideration for the supply of those properties exceeds an approved valuation of the interest in those properties as at 1 July 2000. Based on the information that you have provided, as the consideration for the supply of the residential properties B and commercial properties does not exceed an approved valuation of the interest in those properties as at 1 July 2000, there is no GST payable on the supply of the taxable part.

On a specified date we issued a private ruling (the earlier private ruling) to you in relation to your sale of the specified properties. | In the earlier private ruling we advised that you were eligible to use the margin scheme. However, we considered that apportioning the consideration for the supply based on the number of lots sold to determine the value of the taxable part was unreasonable. | You stated that you have considered the comments and reasons of the earlier private ruling and are now of the view that a reasonable way to apportion the price is based on land area. You have revised the apportionment method and would like us to confirm that the revised apportionment method used to determine the portion of the price that is taxable is considered reasonable. | You stated that you accept the decisions made in the earlier private ruling. | Details of the properties sold and contract of sale: You were the registered proprietor of the properties comprising a specified number of allotments as follows: | · residential properties (the residential properties A) | · vacant land which previously contained residential premises (the residential properties B), and | · commercial properties (the commercial properties). | You acquired the residential properties A from unrelated third parties for consideration after 1 July 2000. | You acquired the residential properties B from unrelated third parties for consideration prior to 1 July 2000. | You acquired the commercial properties prior to 1 July 2000. | At the time of acquisition, the residential properties A and B each contained older style residential dwellings which were constructed many decades ago. | You transferred the residential properties A and B to a member of your GST group after 1 July 2000. | The residential dwellings on the residential properties B which were used solely for the purpose of leasing to third parties were substantially damaged and were then demolished. | You reacquired the residential properties A and B from your GST group member on a specified date for a specified nominal consideration. | After you reacquired the residential properties A and B from your GST group member, you entered into a contract for the sale of the properties (the contract) with an unrelated entity (the purchaser). The settlement took place on a specified date. | At the time of the sale of the properties to the purchaser, the residential dwellings situated on the residential properties A were leased to third parties pursuant to residential tenancy agreements. There were no substantial renovations carried out at these properties since they were acquired by you from the unrelated third parties. | At the time of the sale of the properties to the purchaser, the residential properties B were vacant land and since the demolition of the residential dwellings you did not do anything significant to improve the value of the vacant land. | At the time of the sale of the properties to the purchaser, the commercial properties contained purpose built commercial buildings which were constructed prior to 1 July 2000 and used for a specified business. The business that had operated on those properties ceased a few years prior to the sale to the purchaser. The commercial properties were not occupied since. | The sale price for the properties was $X exclusive of GST. | The contract provides that all consideration provided by the purchaser under the contract is calculated without regard to GST and that the amount of consideration will be increased so that you are compensated for any GST payable on the supply of the properties. | The contract provides that the parties agree that you will apply the margin scheme on the sale of the properties made under the contract. | You did not engage a real estate agent to sell the properties. You sought interested purchasers through a number of specified channels. The purchase approached you after having been referred via these channels. | The purchaser has never had prior dealings with you. The purchaser has not provided any further consideration to you whether monetary or non-monetary that is directly or indirectly related to the sale of the properties. The purchaser was unknown to you up until the time the offer to purchase the properties was made by the purchaser. | All the allotments are zoned similarly. | You have been registered for GST since 1 July 2000. | Valuation reports: You provided copies of two valuation reports. | · Valuation report 20YY: In 20YY, you engaged a valuer (the valuer) to value the properties. The valuation was done for a specified purpose. The date of inspection and valuation was DD/MM/20YY. | The 20YY valuation report provides that the total land value of the site at the time of valuation (DD/MM/20YY) was $Y exclusive of GST (calculated based on D sqm @ $E psm). The report does not assign a value to each property. Further, the 20YY valuation report does not take the value of the commercial properties, residential premises and other improvements into account when determining the site value. The 20YY valuation states that improvements add a nominal value to the site as they are to be demolished to accommodate the proposed development. | The 20YY valuation report considered a proposed development. The valuer's analysis indicated that the highest and best use of the properties was to sell the properties as vacant land utilising the existing Torrens Title allotments. This required the demolition of the commercial and residential properties and other improvements on the land. The cost of the development project including the selling costs were estimated to be around $F and the total market value of the subdivided lots 'as if complete' on the date of valuation was assessed at $G. | In determining the price for the sale of each lot as if complete as at DD/MM/20YY, the 20YY valuation report examined the market activity within the locality (and surrounding applicable region) and also researched databases including RP Data for details of comparable sales. The report adopted a range between $H to $I for the smaller blocks and $K for the larger blocks. | · Valuation report 20ZZ: In 20ZZ you engaged the valuer again to value the properties as at 1 July 2000. | The 20ZZ valuation report provides that the site was inspected on DD/MM/20ZZ. The valuation report provides that the valuation was prepared in accordance with the requirements under subsection 75-35(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and the A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2009/1 for determining the market value as at 1 July 2000 for tax purposes only. | The 20ZZ valuation report provided that the dwellings on the residential properties A were constructed many decades ago and in average to fair condition and the commercial premises required substantial maintenance to bring them to an operational standard. | The valuer valued the properties at $L as at 1 July 2000 and apportioned the amount between the residential properties A, residential properties B and commercial properties. | Proposed apportionment method: You stated that you have considered the comments and reasons of the earlier private ruling and you are now of the view that a reasonable way to apportion the price is based on land area. | You have revised your calculations of GST in light of the revised apportionment method based on land area as opposed to the number of lots. You enclosed an annexure showing your calculations in determining the GST payable on the supply of the taxable part of the properties under the margin scheme using the revised method. Based on the revised apportionment method, the value of the taxable part of the supply of the properties (the residential properties B and commercial properties) as at 1 July 2000, is higher than the consideration for the supply of that part. The margin is thus a negative value. | You also stated that your intention had been to sell all the properties as a whole and not as separate properties therefore you did not request separate valuations for the properties. You followed the advice from the valuations that suggest that it would be most effective to sell the lots as a whole for development purposes rather than selling them individually. Therefore, there had not been any negotiations between you and interested purchasers (including the actual purchaser) that involved apportioning the price between the residential properties A, the residential properties B and the commercial properties.