Private ruling: GST and the margin scheme
Published: December 2013

Ruling: Q3: Can the purchaser decide to purchase the property without applying the margin scheme under section 75-5 of the A New Tax System (Goods and Services Tax) Act 1999 ? Advice/Answers Yes, if the purchaser does not agree in writing, the margin scheme does not apply to the sale and the GST applies to the full sale price. However the sale may be a GST-free supply of a going concern if certain conditions are met.

Relevant facts and circumstances: The entity constructed the premises on the property prior to the introduction of the goods and services tax on 1 July 2000. The entity has been registered for GST since 1 July 2000 and the sale of the property will be a taxable supply.

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. | A New Tax System (Goods and Services Tax) Act 1999 section 38-325.

Reasons for decision: Summary: Section 75-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that the margin scheme can be applied to determine the GST payable on the taxable supply of real property if: · the supply is made by way of selling a freehold interest, selling a stratum unit or granting or selling a long-term lease; and · the supplier and recipient have agreed in writing that the margin scheme is to apply; and · the agreement was made on or before the making of the supply or within such further period as the Commissioner allows; The amount of GST payable on the taxable supply where the margin scheme is used is calculated as 1/11 th of the 'margin' for the supply in accordance with section 75-10 of the GST Act. Generally, the margin for the sale of real property which was acquired prior to 1 July 2000 is the difference between the selling price and the value of the property as at 1 July 2000 (as determined by an approved valuation). The Commissioner has determined the requirements of an approved valuation which is attached as Schedule 2 to Goods and Services Tax Ruling GSTR 2006/7. The A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2009/1 specifies that a valuation must: · be made by a professional valuer; and · the valuation must be in writing; and · the valuation must determine the market value of the interest, unit or lease at the valuation date; · 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; · the valuation must include a signed certificate which specifies: (a) 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, · be made by the time specified (generally, by the due date for lodgement of the Business Activity Statement for the tax period in which the GST on the sale is attributable). It is likely that a valuation of the property as at 1 July 2000 would be greater than the sum of the purchase price of the land and the construction costs to build the premises which means that the margin will be smaller. One of the requirements for eligibility to use the margin scheme under section 75-5 of the GST Act is that the supplier and the recipient must agree in writing that the margin scheme is to apply to the sale. If either the seller or the purchaser do not agree, then the margin scheme can not be used to calculate the GST payable on the sale. In this case, the GST would be calculated as 1/11 th of the total price received for the sale. Where the margin scheme has been applied, the purchaser is not entitled to claim the input tax credits in relation to the acquisition. If the purchase would ordinarily result in the purchaser being entitled to claim the input tax credits, the recipient may decide not to have the margin scheme apply in order to claim those input tax credits. However, the purchaser would not be eligible to use the margin scheme on any subsequent sale of the property. The sale of a business may be GST-free under section 38-325 of the GST Act. Goods and Services Tax Ruling GSTR 2002/5 provides detailed explanation of when a supply is a GST-free supply of a going concern. Generally, the sale of a business is GST-free if: · the sale is for consideration (payment) and; · the supplier and purchaser are both registered for GST (or required to be registered); and · the supplier and purchaser have agreed in writing that the supply is of a going concern; and · the sale includes all things that are necessary for the continued operation of the business; and; · the supplier will carry on the business until the day of the supply.

Question 1: Can the margin scheme be used to determine the amount of GST payable under section 75-5 of the A New Tax System (Goods and Services Tax) Act 1999 on the sale of the property? | Yes, the margin scheme can be used to determine the amount of GST payable under section 75-5 of the A New Tax System (Goods and Services Tax) Act 1999 on the sale of the property. | Question 2: Can the margin be calculated under section 75-10 of the A New Tax System (Goods and Services Tax) Act 1999 using the cost of purchase and construction of the premises? | The margin must be calculated using an approved valuation.