Private ruling: GST and the supply of real property
Date of advice: 15 July 2016
Published: August 2016

Ruling: Q1: Are you entitled to apply the margin scheme under Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) to calculate your GST liability on the sale of the Land? | A1: Yes, on the facts provided, the Borrower would be entitled to apply the margin scheme to their supply of the Land. ATO Interpretative Decision ATO ID 2001/112 states: Having regard for the provisions of Division 105 of the GST Act, the creditor is taken to be standing in the shoes of the debtor when the creditor makes the supply. Therefore, for the purpose of the creditor applying the margin scheme to the sale, the word 'you' as used in section 75-5 is taken to mean the debtor. As the debtor was able to apply the margin scheme in line with section 75-5 of the GST Act, the entity may also choose to apply the margin scheme in respect of the sale. Therefore, as the Borrower was able to apply the margin scheme in line with section 75-5 of the GST Act, you may also choose to apply the margin scheme in respect of the sale, provided you and the purchaser agree in writing on or before the making of the supply.

Relevant facts and circumstances: On or about ddmmyyyy, you advanced funds to the Borrower to purchase the Land. Your loan to the Borrower was secured by way of registered mortgage over the Land (the Mortgage). The Borrower is in default under the loan contract and the Mortgages. On or about ddmmyyyy, you took possession of the Land and are entitled, pursuant to the Mortgage, to sell the Land as mortgagee in possession. The Land is a freehold interest located in Australia. The Borrower is the registered owner of the Land in its own capacity and not as trustee of a trust. The Land is approximately 800 m 2 and its present use is residential land. When the Borrower acquired the Land it was a vacant lot in a newly created residential subdivision. Located on the Land is a building that is currently under construction. Within that building are two units, a principal unit and a separate unit that has been described as a flat. The degree of construction between the two units varies. The valuation report prepared by the valuer provides a description of the buildings. 'The subject property comprises under construction duplex pair that are both at different stages of completion, externally neither of the units are completed. (refer photos) ... Unit one is almost completed internally to the upper level with the following requiring completion: Ensuite Kitchen Cupboard doors The lower level to this unit has some frames completed however it is unknown what these areas are proposed to be. … Unit two is not that far advanced as it is more of a shell with the plastering and painting completed however the bathroom is a shell and the floors require completion and also the kitchen. (refer to photographs). It is unknown if the lower level to this unit is also to be enclosed as there are no frames here. It is expected that there will be car accommodation under the units as concrete driveways have been completed. We have valued the property as land value and some added value for the improvements. …' The Land is currently unoccupied. Prior to you taking possession of the Land, the granny flat was occupied as a residence. It is not clear whether this contravened local council regulations. The valuation report states that the buildings are not suitable for rent. You are unaware how long the flat was occupied for, or whether the occupant was charged rent or occupied the unit with the knowledge of the Borrower. The mercantile agent's report indicates that there was realty signage on site at your first attempt to take possession of the Land, although you are uncertain, on the information available, whether that signage was for the sale or lease of the Land. You intend to exercise your power of sale and enter into a contract for sale in respect of the Land as mortgagee in possession. The Borrower is an incorporated proprietary limited company. The Borrower has no current directors. Your Internet search of the Borrower indicates that it conducts (or once conducted) a residential construction, construction & renovation and construction management enterprise. You believe that the Borrower commenced construction of the building with the intention of selling or leasing it as part of that enterprise. The Borrower is currently registered for GST. You believe that the Borrower may have ceased its property development enterprise prior to: • you being appointed as a controller of the Borrower in relation to other properties; and • you taking possession of the Land. There is no information available to you to suggest that the Borrower had changed its use of the Land or that the supply of the Land, if made by the Borrower, would be anything but a supply in the course of winding up the Borrower's enterprise. The Borrower purchased the Land off the plan from the previous owner pursuant to a contract for sale dated ddmmyyyy (the Purchase Contract). You do not have a complete copy of the Purchase Contract. You supplied a copy of that part of the Purchase Contract that you do hold. The previous owner conducts an enterprise. The previous owner is not, and was not at all material times in relation to the Purchase Contract, registered for GST. The Land and other lots were created by the subdivision of a larger lot. The transfer of the Land between the previous owner and the Borrower was dated ddmmyyyy and was registered later. You believe that, while the previous owner was not registered for GST, it was required to be registered for GST. On the information available, you are unable to determine whether the margin scheme was applied in relation to the acquisition of the Land. You assume that, as the previous owner was not registered for GST that it did not charge GST at settlement of the Purchase Contracts. The Borrower has not given you a written notice stating (with full reasons) that the supply would not be a taxable supply if the debtor were to make the supply. On ddmmyyyy, you (via your agent) advised you were satisfied that the supply of the Land would be a taxable supply if the Borrower were to make the supply. You provided various documents.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 75-5