Private ruling: GST and the margin scheme
Date of advice: 29 July 2020
Published: August 2020

Ruling: Q1: For the purposes of applying the margin scheme, what are the relevant provisions in section 75-11 of the A New Tax System (Goods and Services Tax) Act 1999 when individual A and individual B sell their interests in lots of land subdivided from the property? | A1: For the purposes of applying the margin scheme, the relevant provisions in section 75-11 of the A New Tax System (Goods and Services Tax) Act 1999 when individual A and individual B sell their interests in lots of land subdivided from the property: individual A - subparagraph 75-11(3)(d)(iii) individual B - paragraph 75-11(7)(d)

Relevant facts and circumstances: Individuals A and B (you) own the property. You are married and live on the Property. Individuals A and B do not carry on any enterprise in their personal capacity and are not registered for GST. You entered into a Development Agreement with a Developer grant the Developer the rights to develop and sell the property. You applied for a private ruling as to whether you are required to register for GST in relation to the development of the property. You were issued with a private ruling which ruled that Individuals A and B, as the owners of the property subject to the development agreement, are required to register for GST. In your submission for a private ruling, you advised that you both inherited the property from a deceased estate in 2009. You now advise that this is incorrect. You provided a copy of the last Will and Testament which appointed Individual A as the legal personal representative and instructed that all property was to be sold and the proceeds left solely to Individual A. The deceased acquired the property prior to 1 July 2000 and was not registered or required to be registered for GST. Individual A, as the legal personal representative, decided to not sell the property but instead transfer the property directly to Individual A. Following the transfer of the property to Individual A, they gifted a 50% interest in the property to Individual B. You were both registered as joint proprietors of the property in 2009. Individual A was not registered or required to be registered for GST at the time of gifting an interest in the property to Individual B. You advise that you expect settlement contracts for the sale of lots subdivided from the property to occur in 2021.


Reasons for decision: Summary: Unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). You will be selling lots of land subdivided from your property and will be required to register for GST as per the private ruling issued to you. An entity may apply the margin scheme in working out the amount of GST on a taxable supply of real property. The entity and the recipient of the supply must agree in writing that the margin scheme is to apply. However, the margin scheme cannot be applied if you acquire the real property through a supply that was ineligible for the margin scheme. Individual A Subsection 75-5(3) sets out supplies that are ineligible for the margin scheme. Individual A acquired their interest in the property from a deceased estate and so paragraph 75-5(3)(b) is relevant. Under paragraph 75-5(3)(b), a supply is ineligible for the margin scheme if it is a supply of a thing you acquire by inheriting it from a deceased person who acquired all of it through a supply that was ineligible for the margin scheme. As the deceased acquired the property before 1 July 2000, paragraph 75-5(3)(b) will not apply and there are no other provisions in subsection 75-5(3) that apply. Section 75-11 is relevant in this case in determining the margin for any sale of a subdivided lot from the property. In particular, subsection 75-11(3) applies for real property acquired from a deceased estate. Individual A inherited the property from the deceased who acquired the property prior to 1 July 2000 and none of subsections 75-11(1) to (2B) apply. Paragraph 75-11(3)(ca) will not apply as Individual A does not intend to use the consideration for the supply of the property to the deceased, even if known. Paragraph 75-11(3)e) will not apply as the deceased was not registered or required to be registered for GST prior to Individual A inheritance of the property. Therefore, paragraph 75-11(3)(d) will apply to the sale of a subdivided lot of the property if the supplier and the recipient agree in writing that the margin scheme is to apply. Under paragraph 75-11(3)(d), an approved valuation of the property is req uired as at the latest of: · 1 July 2000 · the day on which Individual A inherited the property, or · the first day on which Individual A registered or became required to be registered for GST. You advise that Individual A will likely be required to register for GST in 2020, being 12 months prior to the first sale of a subdivided lot from the property. As this date will be after 1 July 2000 and the date on which Individual A inherited the property, it will be the applicable date for an approved valuation of Individual A interest in the property for the purposes of applying the margin scheme. Therefore, subparagraph 75-11(3)(d)(iii) is relevant when applying the margin scheme to the sale of Individual A's interest in lots of land subdivided from the property. Individual B Individual B acquired their interest in the property in 2009 when it was gifted to them by Individual A. As Individual A and Individual B are married, they are associates for the purposes of the GST Act. In these circumstances, paragraph 75-5(3)(g) is relevant for determining if a supply is ineligible for the margin scheme. There are five criteria in paragraph 75-5(3)(g) that must all be satisfied before a supply is ineligible for the margin scheme. As Individual A was not registered or required to be registered for GST at the time they gifted an interest in the property to Individual B and did not acquire the interest through a taxable supply, subparagraphs 75-5(3)(i) and (v) are not satisfied. There are no other provisions in subsection 75-5(3) that apply. Section 75-11 is relevant in this case in determining the margin for any sale of a subdivided lot from the property. In particular, subsection 75-11(7) applies for real property acquired from an associate and in this case, none of the other subsections in subsection 75-11 apply. Individual B acquired their interest in the property from an associate after 1 July 2000. Therefore, paragraph 75-11(7)(d) will apply in determining the margin for any sale of a subdivided lot from the property. To apply the margin scheme, Individual B will need to use the GST inclusive market value of their interest in the property as at the date it was gifted to them. Further information If you apply the margin scheme when selling your respective interests in the subdivided lots, you will need to apportion the approved valuation as at the date of registration for GST in respect of Individual A and the GST inclusive market value as at the date it was gifted to them in respect of Individual B between the subdivided lots. Further information on this can be found on our website at subdivided land and in paragraphs 58-68 of GSTR 2006/8 Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000.