Private ruling: GST and the margin scheme
Date of advice: 18 October 2018
Published: December 2018
Ruling period: Ending 31 October 20XX
Date scheme commenced: 18 October 20XX

Ruling: Q1: Is Entity X eligible to use the margin scheme to calculate the GST payable on the proposed sale of the Land? | A1: Yes. Entity X is eligible to use the margin scheme on the proposed sale of Land provided that Entity X and the purchaser have made an agreement in writing to apply the margin scheme on or before the making of the supply.

Relevant facts and circumstances: Entity X is the registered owner of the Land currently subject to negotiations to be sold to a Purchaser. Most of the Land subject to the proposed sale, which is currently held by Entity X, was originally vested to Entity X prior to 1 July 2000. However part of the Land was acquired by Entity X by way of a boundary reconfiguration in mid-20XX. Entity X’s acquisition of the Land interest before 1 July 2000 and the subsequent additional land acquired in 2008 is taken to meet the requirements of an acquisition from an associate pursuant to Subdivision 72-D of the GST Act. The additional Land acquired by Entity X in 20XX was acquired for nil consideration. This additional land area incorporated reclaimed land. The reclamation of this land was man made. Satellite images of the Land as at 1 July 2000 show that the Land is cleared land which includes a building and other structures. There is also at least two access roads leading to the adjacent facilities and dedicated parking areas. Entity X is registered for GST. Assumption(s) ● Other than the queries raised in this request, Entity X will satisfy the remaining requirements to apply the margin scheme in accordance with section 75-5 of the GST Act.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 75-5 | 75-10(3)(g) | 75-11(7)

Reasons for decision: Detailed Reasoning - Summary:: Entity X is entitled to apply the margin scheme to the sale of Land. | Detailed Reasoning - Detailed reasoning: Division 75 of the GST Act allows an entity to calculate the GST payable on the supply of land under the margin scheme where the relevant requirements are met. On the assumption that Entity X will meet the requirements to obtain a written agreement that the margin scheme applies (as per section 75-5(1)) and subject to the requirements of section 75-5(1A) being satisfied in respect of when the agreement is to be made, you have submitted that the supply by Entity X does not fall within subsection 75-5(3) of the GST Act, and in particular 75-5(3)(g) does not apply as the ‘State did not acquire the land through a taxable supply’. As such, you conclude that the Land is not a supply that is ineligible for the margin scheme. In this case the Commissioner agrees with your conclusion that the supply does not fall within 75-5(3) of the GST Act. In particular we consider that one or more of the requirements in paragraphs 75-5(3)(g) will not be met and consequently 75-5(3)(g) does not apply. Further as none of the remaining paragraphs in 75-5(3) apply the supply is not an ineligible supply. | Summary: The Commissioner considers that the margin for the supply of the Land is to be calculated pursuant to subsection 75-11(7) of the GST Act. Relevantly to the extent Entity X has acquired their interest in the Land: ● prior to 1 July 2000, the margin for the supply is the amount by which the consideration for the supply exceed an approved valuation of the interest, unit or lease as at 1 July 2000. ● after 1 July 2000, the margin for the supply is the GST Inclusive market value of the interest, unit or lease at the time of the acquisition. This will apply to the part of Land that was acquired in Mid-20XX. | 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. You have submitted that for the purposes of calculating the GST on the supply of the Land, the margin will be the difference between the consideration for the proposed sale of the Land and the approved valuation of the Land as at 1 July 2000. In reaching this conclusion you are of the view that Entity X has effectively held its interest in the property since before 1 July 2000. In this case the Commissioner accepts that part of the Land has been held by Entity X since before 1 July 2000. However in respect of some areas of the Land the Commissioner considers that part of the interest was acquired by Entity X after 1 July 2000. That is, to the extent that Entity X acquired additional land in mid-20XX, this land was not held as at 1 July 2000. Subsection 75-10(3) operates subject to section 75-11. Section 75-11 considers how to calculate margins for supplies of real property in particular circumstances and subsection 75-11(6) and 75-11(7) deals with the ‘margin for supply of real property acquired from associate’. In this case subsection 75-11(6) does not apply as Entity X has acquired the entire Land prior to 9 December 2008. However subsection 75-11(7) states that: (7) If: (a) you acquired the interest, unit or lease in question from an entity who was your *associate at the time of the acquisition; and (b) none of the other subsections of this section apply; the margin for the supply you make is the amount by which the * consideration for the supply exceeds: (c) if your acquisition was made before 1 July 2000--an * approved valuation of the interest, unit or lease as at 1 July 2000; or (d) if your acquisition was made on or after 1 July 2000--the * GST inclusive market value of the interest, unit or lease at the time of the acquisition. Accordingly as Entity X satisfies the requirements under subsection 75-11(7), the margin will not be calculated under subsection 75-10 of the GST Act. Instead subsection 75-11(7) applies and to the extent Entity X has acquired their interest in the Land: ● prior to 1 July 2000, the margin for the supply is the amount by which the consideration for the supply exceed an approved valuation of the interest, unit or lease as at 1 July 2000. ● after 1 July 2000, the margin for the supply is the GST Inclusive market value of the interest, unit or lease at the time of the acquisition. This will apply to the part of the Land that was acquired in August 2008.