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

Ruling: Q4: For the purpose of calculating the GST liability on the taxable supply of the Property, what is the consideration received by you for making the taxable supply? Advice/Answer The price is $xxxxx plus GST payable (calculated under the margin scheme)

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. o A State Act provided for the transfer of certain property to the State Authority (SA). o The State Act constituted SA as a corporation which was a statutory body representing the Crown and had the status, privileges and immunities of the Crown and was registered for goods and services tax (GST). o SA was subject to the control and direction of a minister of the State Government (the Minister) in the exercise of its functions. o To give effect to the State Act, the Government has approved a certain relevant policy framework. o The requirements provided in the framework applied to government agencies. o SA provided particular services to the government. o SA undertook the statutory vesting process by providing the particular services: o Before 1 July 2000, the former Minister was the registered proprietor of the Property. o The Office of the former Minister was registered for GST from 1 July 2000 to 30 June 200X. o The Order gazetted in 200Y included the Property in the Schedule to the SA Act. This had the effect of transferring the Property to SA on 1 July 200Y. That is, on that date, the Property vested in SA for an estate in fee simple. No consideration was provided by SA to the former Minister upon the vesting of the Property in SA. o There were improvements on the Property as at 1 July 2000. o In the recent year, the State Act was amended to become the Government Act and the SA changed its name to AB. The Government Act (like the SA Act) provides for the transfer of certain property to AB. o Section 53 of the Interpretation Act 1987 provides that if an Act alters the name of a body or office: (a) the body or office continues in existence under its new name so that its identity is not affected, and (b) a reference in any Act or instrument, or in any other document, to the body or office under its former name is to be read as a reference to the body or office under its new name (except in relation to matters that occurred before the alteration took place). o AB is a statutory body representing the Crown and has the status, privileges and immunities of the Crown and is registered for GST. o AB is subject to the control and direction of another Minister in the exercise of its functions. o SA and AB are the same entity. This was recorded by the Registrar General in the recent particular year There is no change in the entity's ABN. The Draft Contract o Pursuant to the Draft Contract for Sale, AB will supply the Property to A for a monetary amount of $xxxx (exclusive of GST). A copy of the Draft Contract is provided. o AB has obtained a valuation of the Property. This valuation provides a valuation for the Property as at 1 July 2000. o A clause of the Draft Contract provides that AB and A have agreed in writing to apply the margin scheme. Draft valuation report o AB has provided a draft valuation report prepared for the market value as at 1 July 2000. o The draft Valuation report is prepared by a certified Practising Valuer and is a registered valuer.

Relevant legislative provisions: A New Tax System (Goods and services Tax) Act 1999 Div 9 | Div 72 | Div 75 | Div 195 | A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2009/1 (MSV 2009/1).

Reasons for decision: Summary: AB can calculate the GST liability on the supply of the Property to A under the margin scheme. | Detailed Reasoning - Detailed reasoning: We consider that AB makes a taxable supply to A under section 9-5 of the GST Act when it sells the Property to A. Generally, under Subdivision 9-C of the GST Act, the GST payable on a taxable supply is 1/11 of the price of the supply However, Division 75 of the GST Act allows a supplier of a taxable supply of real property and the recipient of the taxable supply to use the margin scheme in working out the amount of GST payable on the supply. | Detailed Reasoning - Conditions for applying the margin scheme: To apply the margin scheme all of the following conditions must be satisfied | Detailed Reasoning - · Agreed in writing: Both the supplier and the recipient of the supply have agreed in writing that the margin scheme is to apply. The agreement must be made on or before the supply or within such further periods as the Commissioner allows (subsections 75-5(1) and 75-5(1A) of the GST Act). Clause X of the Draft Contract provides that AB and A have agreed in writing to apply the margin scheme. | Detailed Reasoning - · Eligibility for the margin scheme: The margin scheme does not apply if the supplier acquired the entire freehold interest through a supply that was ineligible for the margin scheme (subsection 75-5(2) of the GST Act). Subsection 75-5(3) of the GST Act explains when a supply is ineligible for the margin scheme. Of relevance to AB's circumstances is paragraph 75-5(3)(a) of the GST Act which states: (3) A supply is ineligible for the margin scheme if: (a) it is a *taxable supply on which the GST was worked out without applying the *margin scheme *An asterisk denotes a defined term in the GST Act. The SA acquired the Property from the former Minister on 1 July 200Y. No consideration was provided by SA to the Minister. Some time in the subsequent year, the Registrar General pursuant to an application to record new registered proprietor recorded SA as the registered proprietor of the Property. GSTR 2006/9 discusses in paragraphs 80 to 91 the vesting in government authorities which are empowered by legislation to compulsorily acquire an interest in real property. The effect of compulsory acquisition of the real property is that every registered and unregistered interest in the property is extinguished, and each person who formerly held such an interest has that holding converted into a claim for compensation. In particular, paragraph 84 of GSTR provides: Mere acceptance by an owner of an amount of compensation payable on the compulsory acquisition does not provide a sufficient nexus between the land which passes and the means by which it passes. The fact that the owner does not dispute the acquisition is not an activity that effects the supply of the land. Even if the owner agrees to the terms of the acquisition and the amount of compensation, the land is acquired by operation of the statute, upon publication of the acquisition notice, not by an action taken by the landowner. Applying the real property policy framework, SA initiated the statutory process for the vesting to SA of the ownership of the Property. The vesting extinguished all the interest and rights of the former Minister (trading as the Minister) in the Property. However, the Minister who had not received any compensation (as none was payable) had not done anything to cause the vesting to take place. In these circumstances, we consider that notwithstanding the framework also applied to the Minister, he did not make a supply of real property to SA for GST purposes. Further, we consider that the extinguishment of the interest and rights the Minister had in the Property was not a supply made by him. This is because he took no action to cause the vesting of the Property to SA. Therefore, although SA acquired the Property pursuant to the real property policy framework in discharging its statutory functions conferred or imposed on it by the SA Act, SA did not acquire the Property through a supply or taxable supply made by the Minister. SA changed its name to AB in the recent year. That is, SA and AB are the names of the same statutory body representing the Crown respectively before and after that date. For GST purposes, as SA did not acquire the Property through a supply or taxable supply made by the Minister, neither did AB. Therefore, AB can apply the margin scheme to the taxable supply of the Property it makes to A as they have agreed in writing that the margin scheme is to apply. | Summary: AB cannot calculate the margin of the supply by reference to the 1 of July 2000 valuation in subsection 75-11(6) of the GST Act because the Minister were not registered or required to be registered for GST at the time SA acquired the Property. | Detailed Reasoning - Detailed reasoning: The Office of the former Minister was an artificial legal person that was separate from the individual who occupied the position. The Minister implemented policies and decisions of the Government and administered State legislation allocated to his Office. Amongst other things, the Minister, as the registered owner, held title to government owned land such as the Property before vesting in SA. For GST purposes, we consider that the former Minister was a corporation sole (which is an entity) discharging governmental functions for the State. That is, the State was carrying on the relevant business or functions through an entity which was the former Minister. In these circumstances, we consider that the former Minister (or the Office of the former Minister) was the State. The SA Act constituted SA as a corporation which was a statutory body representing the Crown and had the status, privileges and immunities of the Crown. SA was subject to the control and direction of another Minister in the exercise of its functions. For GST purposes, we consider that SA was a body corporate (which is an entity) discharging governmental functions for the State. That is, the State was carrying on the relevant business or functions through an entity which was SA. In these circumstances, we consider that SA was the State. In these circumstances, we consider that the former Minister and SA are associates for GST purposes. SA paid no compensation or consideration to the former Minister upon acquiring the Property on 1 July 200Y under the statutory vesting process. The former Minister who was registered for GST between 1 July 2000 and 30 June 200X was the registered owner of the Property prior to 1 July 2000. SA changed its name to AB in the recent year. That is, SA and AB are the names of the same statutory body representing the Crown respectively before and after that date. For GST purposes, we consider that the former Minister and AB are associates. | Detailed Reasoning - Margin for supply of real property acquired from associate: If: (a) you acquired the interest, unit or lease in question from an entity who was your *associate, and who was *registered or *required to be registered, at the time of the acquisition; and (b) the acquisition from your associate was without *consideration; and (c) the supply by your associate was not a *taxable supply; and (d) your associate made the supply in the course or furtherance of an *enterprise that your associate *carried on; and (e) none of subsections (1) to (5) applies; the margin for the supply you make is the amount by which the consideration for the supply exceeds: (f) if your associate had acquired the interest, unit or lease before 1 July 2000 and on that day was registered or required to be registered: (i) if you choose to apply an *approved valuation to work out the margin for the supply -an approved valuation of the interest, unit or lease as at 1 July 2000; or (ii) if subparagraph (i) does not apply - the *GST inclusive market value of the interest, unit or lease as at 1 July 2000; or … Paragraph 75-11(6)(a) of the GST Act requires the associate (the Minister) be registered or required to be registered for GST at the time SA (AB) acquired the Property on 1 July 200Y [vesting as per the State Authority Order effective 1July 200Y]. The Minister cancelled GST registration prior to 1 July 200Y. Therefore subsection 75-11(6) of the GST Act does not apply to the work out the margin on the supply of the Property by AB. | Summary: AB can calculate the margin for the supply by using the GST inclusive market value of the Property as at 1 July 200Y for the purposes of paragraph 75-11(7)(d) of the GST Act. | Detailed Reasoning - Detailed reasoning: Subsection 75-11(7) of the GST Act provides: If: (a) you acquired the interest, unit or lease in question from an entity who was your *associate at the time of the acquisition; and none of the other subsections of this section apply; (b) the margin for the supply you make is the amount by which the *consideration for the supply exceeds: (c) if your acquisition was made before 1 July 2000 - an *approved valuation of the interest, unit or lease as at 1 July 2000; or (d) if your acquisition was made on or after 1 July 2000 - the *GST inclusive market value of the interest, unit or lease at the time of the acquisition. At the time (1 July 200Y) of acquisition of the Property, we consider that SA (which later changed its name to AB) and the Minister were associates and no other subsections of section 75-11 apply. Therefore, we consider that the margin for the supply of the Property to A is to be determined under paragraph 75-11(7)(d) of the GST Act. That is, the margin for the supply is the amount by which the consideration for the supply exceeds the GST inclusive market value of the Property on 1 July 200Y (the time of the vesting of the Property in SA which later changed its name to AB. | Summary: The consideration received by AB for making the taxable supply of the Property is the sum of the amount of money exclusive of GST specified in the Draft Contract and the GST amount calculated under the margin scheme. | Detailed Reasoning - Detailed reasoning: Subsection 9-15(1) of the GST Act provides: Consideration includes: (a)any payment, or any act or forbearance, in connection with a supply of anything; and (b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything. … Subsection 9-75(1) of that Act provides: price is the sum of: (a) so far as the *consideration for the supply is consideration expressed as an amount of *money - the amount (without any discount for the amount of GST (if any) payable on the supply); and (b)so far as the consideration is not consideration expressed as an amount of money - the *GST inclusive market value of that consideration. For GST purposes, we consider consideration for a supply, which is the price of the supply, is GST inclusive. The Draft Contract specifies the amount of money exclusive of GST to be paid by A for the supply of the Property by AB. AB and A are not associates and are dealing at arm's length. We consider that the consideration for the supply of the Property is the sum of the agreed amount of money exclusive of GST and the GST calculated for the margin for the supply.

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. | Question 1: Can you apply the margin scheme to calculate the GST payable on the supply of the property (the Property) to entity A (A) under the Draft Contract for Sale (Draft Contract)? | Question 2: Can you calculate the margin for the supply by applying an approved valuation of the Property as at 1 July 2000 for the purposes of subparagraph 75-11(6)(f)(i) of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)? | Question 3: How do you calculate the margin for the supply of the Property? | Reasons for decision: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.