Private ruling: GST and margin scheme
Published: October 2011

Ruling: Q1: How is the margin calculated on the sale of a property in Australia? Advice From the information received, the margin scheme is not applicable to the sale of the property in Australia.


Relevant legislative provisions: Subsection 75-5(1) of the GST Act | Subsection 75-5(1A) of the GST Act

Reasons for decision: Detailed Reasoning - Detailed reasoning: Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) deals with the application of the margin scheme. Under subsection 75-5(1) of the GST Act, if you make a taxable supply of real property by selling a freehold interest in land, or selling a stratum unit, or granting or selling a long-term lease, you may apply the margin scheme if you and the recipient have agreed in writing that the margin scheme is to apply. Subsection 75-5(1A) of the GST Act provides that the agreement must be made on or before making the supply, or within such further period as the Commissioner allows. Accordingly, for the purposes of subsections 75-5(1) and (1A) of the GST Act, both the buyer and the seller must agree in writing to apply the margin scheme if the contract for sale was made on or after 29 June 2005. Further the agreement to use the margin scheme must be reached by the time the property is supplied which is usually at settlement. There is no set format for a written agreement, but there must be a written statement which makes it clear that the buyer and the seller have agreed to use the margin scheme on the sale and clearly identifies the property being sold. This statement may form part of the sale contract or it may be a separate document. If the purchaser agrees to allow the seller of the property the absolute discretion to apply the margin scheme, the seller must confirm in writing that the margin scheme has been applied, on or before, the settlement date. Based on the information received, the requirements in subsections 75-5(1) and (1A) of the GST Act are not satisfied as you have not entered into a written agreement with the purchaser that the margin scheme is to apply to the sale of the property. Further, the clause in the special conditions of the sale contract is unlikely to meet the requirements of a written agreement as the buyer is not aware whether the vendor has in fact applied the margin scheme to the sale since there is no written evidence or confirmation by the vendor to the purchaser that the margin scheme has been applied on or before the settlement date. Accordingly, you cannot apply the margin scheme to the property and as such the basic rule in section 9-70 of the GST Act will apply for the calculation of the GST payable on the taxable supply. The GST payable under the basic rule in section 9-70 of the GST Act is 1/11 of the price. Note: You may ask for permission to extend the time to have the agreement in writing as you did not have a written agreement by the time the sale was made under subsection 75-5(1A) of the GST Act. For more information, refer to Practice Statement Law Administration PSLA 2005/15: the Commissioner's discretion to extend the time in which the agreement in writing must be made to apply the margin scheme under Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 which is available at www.ato.gov.au

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You are an Australian company and registered for the goods and services tax (GST). You recently sold a property in Australia. | We have received a copy of the sale contract for the property and the first page of the sale contract has provisions about GST. A line has been drawn through all the provisions of GST including the provision that margin scheme will be used in making the taxable supply. | Further one of the special conditions that form part of the sale contract provides that the purchaser agrees that the vendor may at its sole discretion utilise the margin scheme and an election by the vendor to use the margin scheme will constitute for all purposes an agreement by the vendor and the purchaser that the margin scheme will apply to this contract. | We have not received any other documents that make it clear that the purchaser and the seller have agreed to use the margin scheme on the sale of the property.