Private ruling: Goods and services tax and the margin scheme
Date of advice: 4 August 2025
Published: 7 October 2025
Ruling period: 1 July 2025 to 30 June 2028
Date scheme commenced: 4 August 2025

Ruling: Q1: Can you, as Mortgagee in Possession, apply the margin scheme under Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you exercise your power and sell the real property? | A1: Yes, the Mortgagee in Possession is entitled to use the margin scheme provided that: a) the supply of the real property would have been a taxable supply if the Mortgagor had made the supply, and b) if the Mortgagor had sold the real property, could have chosen to apply the margin scheme under section 75-5 of the GST Act.

Relevant facts and circumstances: The Mortgagor is registered for GST effective from XXXX and is the registered proprietor of the real property. The Mortgagor acquired the real property pursuant to a contract of sale dated XXXX from Individual B and Individual C for a purchase price of $XX. At the time of the acquisition of the real property by the Mortgagor, there was a residential premises on it and the supply of the real property was an input taxed supply of residential premises to the Mortgagor. Following completion of the contract of sale, the Mortgagor was duly registered as the legal proprietor of the real property. The Mortgagor acquired the real property for the purpose of undertaking a property development project with the intention of selling the dwellings it built upon completion. The original house on the real property was knocked down and the building of five new double story terrace houses was commenced. Subsequent to the acquisition, the Mortgagor obtained funding from Entity A which was provided in the form of a lending facility to support the Mortgagor's operational and development activities. The real property is subject to a mortgage known as XXXX (Mortgage) under which the Mortgagor mortgaged the real property in favour of Entity A. Entity A (Mortgagee in Possession) is registered for GST effective from XXXX. Due to ongoing cash flow constraints and liquidity issues, the Mortgagor has not been able to complete the full development as originally planned and the Mortgagor was unable to meet its repayment obligations under the Mortgage. As a result, the Mortgagee in Possession initiated steps under external administration to recover the outstanding debt which included enforcement measures involving the real property. On XXXX, the Mortgagee in Possession appointed XXXX as Controllers over the real property. Their role is to take appropriate recovery actions, including the potential auction of the real property with the objective of maximising the realisation of funds to offset the outstanding liabilities owed by the Mortgagor. The Mortgagee in Possession is currently in the process of preparing the real property for sale by auction and has provided a copy of a proposed contract of sale. Notwithstanding that the proposed contract of sale identifies the Mortgagee in Possession as the vendor exercising its power of sale pursuant to the Mortgage by its appointed agent, the property remains registered under the name of the Mortgagor as per a Title search conducted on XXXX with the Land Registry Services. The Controllers have confirmed that the development is approximately 80% to 90% completed as of XXXX. The Mortgagee in Possession has indicated that it intends to complete the remaining development works on the real property. The Mortgagee in Possession has not received a written notice from the Mortgagor stating that the supply of the real property would not be a taxable supply if the Mortgagor were to have made the sale. The real property will be sold subject to agreements in writing between the Mortgagee in Possession and the purchasers that the margin scheme is to apply. These agreements will be entered into on or before the day of 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 Division 105