Private ruling: GST and building program
Published: June 2012

Ruling: Q1: Are you entitled to input tax credits (ITC) for costs of selling the church asset? | A1: No. | Q2: Are you entitled to ITC for costs of construction of 2 residential premises, 1 of which will be sold and the 2 nd retained to provide accommodation for the minister? | A2: Refer to detailed reasoning below. | Q3: What are the goods and services tax (GST) consequences of leasing residential premises prior to it being sold? | A3: Refer to detailed reasoning below. | Q4: Are you able to apply the margin scheme to the sale of residential premises? | A4: Yes you may apply the margin scheme to the sale of the residential premises if the supplies are not ineligible for the margin scheme as outlined in subsection 75-5(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Refer to detailed reasoning below.

Relevant facts and circumstances: You are a not-for-profit entity and an endorsed charitable institution entitled to GST concessions. You are registered for GST. Your ruling entity has legal title to assets held in trust for you. You intend to sell the asset. The asset was built many years ago on what would then have been a vacant block, specifically as a residence for the minister. The asset has the physical characteristics common to residential premises that provide accommodation. There have been no major alterations to the asset. The asset has been used continually for ministers' accommodation. You are required to support the minister by way of a stipend and the provision of accommodation. You pay the minister the recommended stipend + provision of accommodation or a housing allowance. You do not have a responsibility to provide for the minister after retirement, but in the event of illness you would continue to support the minister with sickness benefits and housing until they were able to resume their duties. The conditions of employment of the minister, including role, remuneration and other allowances, are agreed before a minister accepts a call, and are documented. An initial term of employment is agreed upon, with reviews held regularly, and the possibility of extension of term considered towards the last year. Ministers are responsible and accountable to the church board. The provision of appropriate accommodation for the minister has always been part of a salary package. The salary package of your minister is based on the recommended rate set by your State Board, + provision of a home OR a housing allowance + car and book allowance. You intend to build 2 courtyard homes adjacent to the church on church land: The intention is to provide 1 courtyard home as a residence for the minister. However, if the minister wishes to live in alternative accommodation (own home or rental property), the courtyard home would then be rented out, and the rental used to pay the minister's housing allowance or alternative rental accommodation. Rental charged would need to be at least enough to cover these costs. You intend to sell the second courtyard home. You may rent out the second courtyard home for a period prior to the sale

Relevant legislative provisions: All references are to the A New Tax System (Goods and Services Tax) Act 1999 : Section 9-5 | Section 9-15 | Section 9-20 | Section 11-5 | Section 11-15(1) | Section 11-15(2) | Section 38-250. | Section 40-65 | Section 40-75 | Section 75-1 | Section 75-5 | Section 75-10 | Section 75-15 | Section 75-20 | Section 75-25 | Section 75-30 | Section 195-1

Reasons for decision: Summary: The sale of the church asset is input taxed under section 40-65 of the GST Act. As the sale is an input taxed supply input tax credits cannot be claimed for costs of selling the asset. | Detailed Reasoning - Detailed reasoning: GST is payable where you make a taxable supply. You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which states: You make a taxable supply if: (a) you make the supply for *consideration; and (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and (c) the supply is *connected with Australia; and (d) you are *registered, or *required to be registered. However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. (* Denotes a term that is defined in section 195-1 of the GST Act). We need to first consider who will make the supply of the manse. In accordance with paragraph 41 of Goods and Services Tax Ruling GSTR 2008/3, there is nothing in the GST Act which requires that legal title to the assets of an enterprise must be held or dealt with by the entity carrying on the enterprise in order for taxable supplies of the assets to be made. Paragraphs 38 to 40 of GSTR 2008/3 provide that a beneficiary of a bare trust may carry on an enterprise involving an asset the legal title to which is held on trust for the beneficiary by the bare trustee. We consider that if the asset is sold: · the transaction will involve a transfer of the legal title to the asset to a third party by the trustee at the direction of the beneficiary · the beneficiary of the bare trust would be causing the supply to be made in the course of its enterprise; and · the supply would be made by the beneficiary, for GST purposes. Accordingly, as your ruling entity holds the legal title to the asset in your case as bare trustee for you (the beneficiary under the trust), and you use this asset in carrying on your enterprise, we consider that you will be making the supply of the asset to the third party buyer, for GST purposes. Therefore, we now need to consider whether you will be making a taxable supply of the asset to the buyer. You will satisfy the conditions at paragraphs 9-5(a), 9-5(c) and 9-5(d) of the GST Act. That is, you will sell the asset for consideration; this sale will be connected with Australia, as the asset is located in Australia; and you are registered for GST. Additionally, under paragraph 9-20(1)(c) of the GST Act, leasing out property on a regular or continuous basis is an enterprise. You currently lease out the asset, and have done so on a regular and continuous basis. Hence, your sale of the asset will be a supply made in the course or furtherance of the leasing enterprise that you carry on, and therefore, the condition at paragraph 9-5(b) of the GST Act will be met. There are no provisions in the GST Act or any other Act under which your sale of the asset could be GST-free. Therefore, what remains to be determined is whether your sale of the asset will be input taxed. | Detailed Reasoning - Sales of residential premises: Section 40-65 of the GST Act, provides that a sale of residential premises is generally input taxed. However, subsection 40-65(2) of the GST Act provides two exceptions. That is, the sale is not input taxed to the extent that the residential premises are: (a) commercial residential premises; or (b) new residential premises other than those used for residential accommodation before 2 December 1998. 'Commercial residential premises' is defined in section 195-1 of the GST Act. It includes hotels, motels and similar premises, amongst other types of property. Subsection 40-75(1) of the GST Act of the GST Act defines new residential premises, it states: *Residential premises are new residential premises if they: (a) have not previously been sold as residential premises (other than *commercial residential premises) and have not previously been the subject of a *long-term lease; or (b) have been created through *substantial renovations of a building; or (c) have been built, or contain a building that has been built, to replace demolished premises on the same land. Paragraphs 19 to 23 and 26 of GSTR 2000/20 provide guidance on the meaning of residential premises and 'to be used for residential accommodation'. Paragraphs 19 to 23 of GSTR 2000/20 state: 19. Further, the requirement in paragraph 40-35(2)(a) and subsection 40-65(1) that input taxing only applies to the extent that the premises are 'to be used predominantly for residential accommodation' indicates that premises that are residential premises are capable of use for purposes other than residential accommodation. It is their physical characteristics that mark them out as a residence. In turn, these characteristics determine when the use or proposed use is for residential accommodation. 20. To be used for 'residential accommodation' or to be 'occupied as a residence', premises do not have to be a home or a permanent place of abode. To be residential premises as defined, a place need only provide sleeping accommodation and the basic facilities for daily living, even if for a short term. This follows from the definition of commercial residential premises referred to in paragraph 18. 21. Some examples will indicate the differences that need to be understood in this context. If a building consists of a shop below and a flat above, the physical characteristics indicate that only part of the building is residential premises, that is, the flat. The shop is not residential premises and is taxable in the normal way when leased or sold. 22. The function of paragraph 40-35(2)(a) and subsection 40-65(1) is to differentiate the GST treatment of any portions of residential premises that are commercial. This would apply, for example, to a house that has been partly converted for use as a doctor's surgery. Several parts of the house may still be used predominantly for residential accommodation, such as bedrooms, bathroom, kitchen, living rooms and gardens, while other areas are not, being turned over to office and consulting room space, and storage for the surgery. In this case paragraph 40-35(2)(a) and subsection 40-65(1) operate to exclude these commercial parts from the input-taxed treatment of the rest of the property. 23. Whether or not a particular room or part of a house or apartment is to be used predominantly for residential accommodation, as opposed to commercial purposes, is a question of fact and degree. A home office in a house will not generally be sufficiently separate from the rest of the residential premises to distinguish its use and its predominant use will still be residential accommodation. Paragraph 26 of GSTR 2000/20 provides that premises possess the physical characteristics common to residential premises that provide accommodation where they provide the occupants with sleeping accommodation and at least some basic facilities for day to day living. | Detailed Reasoning - Hence:: whether the asset in your case is residential premises, and the extent to which they are to be used predominantly for residential accommodation, for the purposes of section 40-65 of the GST Act, depends on their physical characteristics and not the intention of the purchaser. The asset has the physical characteristics common to residential premises that provide accommodation, as it provides occupants with sleeping accommodation and at least some basic facilities for day to day living. That is, the asset comprises bedrooms, bathroom and toilet, kitchen and living areas. Hence, the asset is residential premises, and is, in its entirety, to be used predominantly for residential accommodation, for the purposes of section 40-65 of the GST Act. The asset is not commercial residential premises, such as a hotel or motel etc. Hence, the exception at paragraph 40-65(2)(a) of the GST Act does not apply. Paragraph 13 of GSTR 2003/3 discusses when the exception at paragraph 40-65(2)(b) of the GST Act will and won't apply. It provides that sales of housing which have been used for residential accommodation before 2 December 1998 are not subject to GST as new residential premises. The exceptions are where new residential premises are created through substantial renovations or are built to replace demolished premises on the same land. Paragraph 53 of GSTR 2003/3 provides further clarification on the exception at paragraph 40-65(2)(b) of the GST Act. It provides that where an entity sells new residential premises, and those new residential premises were created through substantial renovations that occurred before 2 December 1998, but these new residential premises had been used for residential accommodation before 2 December 1998, a sale of those new residential premises is not a taxable supply. It is an input taxed supply (paragraph 40-65(2)(b) of the GST Act). The asset in your case was not built to replace demolished premises on the same land. Additionally, there have not been any substantial renovations of the asset before 2 December 1998. Consequently, the exception at paragraph 40-65(2)(b) of the GST Act won't apply you will not be selling new residential premises other than those used to provide residential accommodation before 2 December 1998 (regardless of whether or not the renovations were substantial renovations). | Detailed Reasoning - Creditable Acquisition: A creditable acquisition is made provided all the requirements of section 11-5 of the GST Act are satisfied. Section 11-5 of the GST Act states: · You make a creditable acquisition if: · you acquire anything solely or partly for a *creditable purpose; and · the supply of the thing to you is a *taxable supply; and · you provide, or are liable to provide, *consideration for the supply; and · you are *registered, or *required to be registered. Subsections 11-15(1) & (2) of the GST Act provide the meaning of creditable purpose. They provide that a thing is acquired for a creditable purpose if it is acquired in carrying on your enterprise. However, you do not acquire the thing for a creditable purpose to the extent that: · the acquisition relates to making supplies that would be input taxed; or · the acquisition is of a private or domestic nature. A supply of residential premises by way of lease, hire or licence is input taxed. This means that you are not entitled to claim GST credits for the GST included in the price of things that you acquire to supply a residential premises by way of lease, hire or licence. Your sale of the asset will be input taxed under section 40-65 of the GST Act. As the sale is an input taxed supply input tax credits cannot be claimed for costs of selling the asset. | Summary: If the value of the housing allowance that you provide to the minister is less than 75% of the market value (of other rents in your area) the supply of accommodation to your minister will be GST-free and you will be entitled to claim ITC for the GST included in the price of things that you acquire in order to make the supply. Provided you hold a tax invoice for an acquisition in respect of the building costs that you incurred, you can claim the ITC. | Detailed Reasoning - Construction of residential accommodation for minister: As mentioned above, a supply of residential premises by way of lease, hire or licence is input taxed. In this case, you are constructing residential accommodation for your minister to reside in. Therefore, you would ordinarily not be entitled to claim GST credits for the GST included in the costs of construction of the residential accommodation. However, section 38-250 of the GST Act provides that a supply of accommodation by a charitable institution, a trustee of a charitable fund, a gift deductible entity or a government school is GST-free if the consideration (payment) for the supply is: · Less than 75% of the GST inclusive market value of the supply; or · Less than 75% of the cost to the supplier of providing the accommodation. When you make a GST-free supply, you are entitled to claim GST credits for the GST included in the price of things that you acquire in order to make the supply. The supply of residential accommodation to your minister will be GST-free and not input taxed provided you satisfy section 38-250 of the GST Act. This is because a supply that is both GST-free and input taxed will always be GST-free unless the provision under which the supply is input taxed requires the supplier to have chosen for its supplies of that kind to be input taxed. Therefore, we need to consider whether you meet the requirements of section 38-250 of the GST Act, for the supply of residential accommodation to your minister. | Detailed Reasoning - Consideration for the supply: Consideration is any consideration, as defined, that is in connection with a supply. Subsection 9-15(1) of the GST Act defines consideration: (a) as any payment, act or forbearance in connection with a supply of anything, and (b) any payment, act or forbearance, in response to, or for the inducement of, a supply of anything. This broad definition of 'consideration' has ramifications for applying section 38-250 of the GST Act to a supply that is a fringe benefit provided to an employee (or their associate). This is because the definition may include services of an employee as consideration for the supply of a fringe benefit to that employee (please refer to paragraph 19 of GSTR 2001/3). This principle is further highlighted in the fact sheet GST and the application of the non-commercial activity rules for charities to the provision of fringe benefits. In determining whether the supply of accommodation by you is GST-free, the following issues must be considered: 1. Is the minister's services consideration for the supply of accommodation? 2. If the answer to question 1 is yes, is the consideration less than 75% of the GST inclusive market value? | Detailed Reasoning - Minister's services consideration for the supply of accommodation: The minister's services will only be consideration for the supply of accommodation where there is a sufficient nexus between the two. This is explained in detail in paragraphs 68 to 71 of GSTR 2001/6, they state: In determining whether a payment is consideration under subsection 9-15(1) [of the GST Act], the test is whether there is a sufficient nexus between the supply and the payment made. This test may establish a nexus between consideration and the supply in a broader range of cases than the 'direct link' test that applies in the European Community and in Canada. While caution needs to be exercised in applying decisions on connective terms in other contexts, the term 'in connection with' has been held to be broader in scope from 'for'. The meaning given to the term 'in connection with' in Berry v FC of T (1953) 89 CLR 653 is ( 'Berry's case' ) is similar to that which was described by the Court of appeal in New Zealand Refining, but needs to be applied with regard to the structure of the definition of supply of the GST Act. In Berry's case , Kitto J held that 'in connection with' was a broader test than 'for' his Honour commented that consideration will be in connection with property where 'the receipt of the payment has a substantial relation, in a practical business sense, to that property'. In determining whether a sufficient nexus exists between supply and consideration, regard needs to be had to the true character of the transaction. An arrangement between parties will be characterised not merely by the description that parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made. | Detailed Reasoning - Form of non-monetary consideration: Paragraphs 74 to 75 of GSTR 2001/6 provide guidance on when services represent non-monetary consideration for a supply, they state: An example of non-monetary consideration was dealt with by the Court of Justice of European Communities in Naturally Yours Cosmetics Ltd v. Customs and Excise Commissioners (1988) 3 BVC 428. This case involved a cosmetics company that sold its products through beauty consultants who arranged for hostesses to organise parties at which the products were offered for sale. The beauty consultant purchased the pot of cream from the cosmetics company for an amount of money less than its normal selling price, giving an undertaking to use it only for the purpose of providing it as a gift to a hostess for organising a party. Otherwise, the beauty consultant had to pay the normal price or return it. It was found there was a direct link between the supply of the pot of cream and the service provided by the beauty consultant to the cosmetics company of arranging the party. The service was therefore non-monetary consideration for the supply of the pot of cream. The consultant's service was valued as the difference between the cream's normal wholesale price and the money paid by the consultant. In determining whether the required link will exist between the minister's services and the supply of accommodation, significant reliance will be placed upon the terms of engagement of the minister. In your case, you have advised that the minister's remuneration and allowances are based on the recommended rate as set by your ruling entity. You have further advised that the conditions of employment, including the role, remuneration and other allowances, are agreed before a minister accepts a call, and are documented. An initial term of employment is agreed upon, with reviews held regularly, and the possibility of extension of term considered towards the last year. Ministers are responsible and accountable to the church board. It is clear from the above information that the accommodation is not provided to your minister merely because of their status as a religious practitioner but because the minister carries out those duties or responsibilities which arise from accepting the call. Essentially, the information that you have provided to us demonstrates the importance to both you and the minister of the role of the minister, the terms and conditions of the call and the process by which the ministry of the minister will be conducted. In your case the services that the minister will provide to you constitutes non-monetary consideration for a supply of accommodation in the residential accommodation. You offer the housing allowance to your minister as part of the remuneration package. That is when you calculate the minister's superannuation, long service leave and holiday loading you include housing allowance along with the minister's stipend. Accordingly, if the value of the housing allowance that you provide is less than 75% of the market value the supply of accommodation to your minister will be GST-free. If this is the case then you will be making a GST-free supply. Hence you will be entitled to claim GST credits for the GST included in the price of things that you acquire in order to make the supply. Provided you hold a tax invoice for an acquisition in respect of the building costs that you incurred, you can claim the GST credits. Please note: The remuneration package provided to your minister may fluctuate annually. Therefore, you will need to review for future years the GST status of a supply of accommodation to your minister. GSTR 2000/24 explains the Tax Office view on when the actual use of the acquisition for a creditable purpose differs from the planned use. | Summary: You are making a creditable acquisition and the sale of new residential premises is a taxable supply you are entitled to claim GST credits for the GST included in the price of things that you acquire in order to make the supply. Construction of 2 nd residential accommodation for sale | Detailed Reasoning - Residential premises: Section 195-1 of the GST Act defines residential premises as land or a building that is occupied as a residence or is intended to be occupied, and is capable of being occupied, as a residence. Paragraph 19 of GSTR 2000/20 explains that it is the physical characteristics of the premises that mark them out as a residence, their use or proposed use intended by the supplier in relation to the occupier (whether the supplier or someone else) that mark them out as residential premises and the use or intended use by the occupier for residential purposes that mark them out as residential accommodation. Paragraph 20 goes on to state that to be residential premises as defined, a place need only provide sleeping accommodation and the basic facilities for daily living. | Detailed Reasoning - New residential premises: The meaning of new residential premises is provided at section 40-75 of the GST Act and discussed further in GSTR 2003/3 which considers when a sale of real property is a sale of new residential premises. Paragraph 24 of GSTR 2003/3 states that residential premises are new residential premises, as defined in subsection 40-75(1), if they: (a) have not previously been sold as residential premises and have not previously been the subject of a long-term lease; or (b) have been created through substantial renovations of a building; or (c) have been built, or contain a building that has been built, to replace demolished premises on the same land. | Detailed Reasoning - Supplies of residential premises: Paragraph 10 of GSTR 2003/3 advises that a sale of new residential premises is a taxable supply. Footnote 20 of GSTR 2000/20 explains that this is because they are specifically excluded from being input taxed supplies by subsection 40-65(2). Sales of all other residential premises, to be used predominantly for residential accommodation, are input taxed supplies. This includes sales of previously unsold or unleased residential premises, substantially renovated buildings or buildings built to replace demolished premises, where these premises have been rented for residential purposes for at least five years prior to being sold. As you are making a creditable acquisition (as discussed above) and the sale of new residential premises is a taxable supply you are entitled to claim GST credits for the GST included in the price of things that you acquire in order to make the supply. Provided you hold a tax invoice for an acquisition in respect of the building costs that you incurred, you can claim the GST credits. | Detailed Reasoning - Detailed reasoning: If the residential accommodation was rented for non-commercial rates of rent, that is less than 75% of the GST inclusive market value of the supply, or 75% of the cost of supply, than ITC could be claimed on expenses incurred in relation to the residential accommodation. In this scenario the rental receipts would be GST-free. However, paragraph 89 of GSTR 2003/3 goes on to discuss some rules that apply when rented housing is sold. Residential premises are not new residential premises if the premises have only been used for making input taxed supplies of residential rental under paragraph 40-35(1)(a) for the period of at least five years since: · the premises first became residential premises , where the premises have not previously been sold as residential premises and have not previously been the subject of a long-term lease; · the premises were last substantially renovated , where the premises have been created through substantial renovation of a building; or · the premises were last built , where the premises have been built, or contain a building that has been built, to replace demolished premises on the same land. | Detailed Reasoning - New residential premises: Residential premises are new when any of the following apply: · they have not been sold as residential premises before · they have been created through substantial renovations · new buildings replace demolished buildings on the same land. Residential premises are no longer new residential premises if they have been continuously rented for five years after first becoming new residential premises. They may still be considered new residential premises however, even if they have been rented out continuously for five years where they have been held for a dual purpose. Dual purpose is where the premises are being, for example, marketed for sale whilst being rented out as an input taxed supply. That is because they have not been held 'solely' for making input taxed supplies for at least five years. You can claim ITC for any purchases you make for the sale of new residential premises (subject to the normal rules on GST credits) and you are liable for GST on the sale. If your residential premises are no longer new, for example, they have been rented for more than five years, they are input taxed. If GST applies to your sale of new residential premises, you generally pay GST of one-eleventh of the sale price. You may be eligible to use the margin scheme to work out the GST you must pay (see Margin scheme for eligibility). If you rent new residential premises before you sell them If you build new residential premises for sale, you can claim ITC for the construction. If you rent the new premises while you are planning to sell them, you will need to adjust part of the ITC you claimed. You must show you intend to sell the premises. Actively marketing the premises for sale is one way of showing this. | Detailed Reasoning - Example: Renting before sale: Helki plans to sell a new residential property she has built. The property has been on the market for some months, so Helki decides to both: rent it out continue to actively market the property for sale. Helki must adjust part of the GST credit she previously claimed because her use of the property has changed from the way she originally intended. That is, she originally intended to sell the new residential premises, however, she is now renting out whilst trying to sell the residential premises. This is known as a change in creditable purpose, she is therefore not entitled to the full credit. | Summary: You may apply the margin scheme to the sale of the residential accommodation if the supplies are not ineligible for the margin scheme as outlined in subsection 75-5(3) of the GST Act. | Detailed Reasoning - Detailed reasoning: Division 75 of the GST Act grants the option of applying the margin scheme in some circumstances to reduce your GST liability on taxable supplies. Subsection 75-5(1) of the GST Ac) states: The *margin scheme applies in working out the amount of GST on a *taxable supply of *real property that you make by: (a) selling a freehold interest in land (b) selling a *stratum unit (c) granting or selling a *long-term lease. if you and the *recipient have agreed in writing that the margin scheme is to apply. Subsection 75-5(1A) of the GST Act states: The agreement must be made (a) on or before making the supply, or (b) within such further period as the Commissioner allows. However, subsection 75-5(2) of the GST Act states: However, the *margin scheme does not apply if you acquired the freehold interest, stratum unit or *long-term lease through a supply that was ineligible for the margin scheme. Subsection 75-5(3) of the GST Act sets out the circumstances in which a supply is ineligible for the margin scheme. It states: | Detailed Reasoning - 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; or (b) it is a supply of a thing you acquired by *inheriting it from a deceased person, and the deceased person had acquired all of it through a supply that was ineligible for the margin scheme; or (c) it is a supply in relation to which all of the following apply: (i) you were a *member of a *GST group at the time you acquired the interest, unit or lease in question; (ii) the entity from whom you acquired it was a member of the GST group at that time; (iii) the last supply of the interest, unit or lease by an entity who was not (at the time of that supply) a member of the GST group to an entity who was (at that time) such a member was a supply that was ineligible for the margin scheme; or (d) it is a supply in relation to which both of the following apply: (i) you acquired the interest, unit or lease from the *joint venture operator of a *GST joint venture at a time when you were a *participant in the joint venture; (ii) the joint venture operator had acquired the interest, unit or lease through a supply that was ineligible for the margin scheme; or (e) it is a supply in relation to which all of the following apply: (i) you acquired the interest, unit or lease from an entity as, or as part of, a *supply of a going concern to you that was *GST-free under Subdivision 38-J; (ii) the entity was *registered or *required to be registered, at the time of the acquisition; (iii) the entity had acquired the entire interest, unit or lease through a taxable supply on which the GST was worked out without applying the margin scheme; or (f) it is a supply in relation to which all of the following apply: (i) you acquired the interest, unit or lease from an entity as, or as part of, a supply to you that was GST-free under Subdivision 38-O; (ii) the entity was registered or required to be registered, at the time of the acquisition; (iii) the entity had acquired the entire interest, unit or lease through a taxable supply on which the GST was worked out without applying the margin scheme; or g) it is a supply in relation to which all of the following apply: (i) you acquired the interest, unit or lease from an entity who was your *associate, and who was registered or required to be registered, at the time of the acquisition; (ii) the acquisition from your associate was without *consideration; (iii) the supply by your associate was not a taxable supply; (iv) your associate made the supply in the course or furtherance of an *enterprise that your associate *carried on; The margin scheme provides some relief in relation to property transactions and allows for a reduced amount of GST to be paid. It applies to the supply of freehold interest in land, strata units and long-term leases, including those held on 1 July 2000. The margin scheme cannot be used if a property is acquired through a taxable supply where GST was calculated without using the margin scheme. Under the margin scheme the amount of GST on a supply is 1/11 of the margin for the supply. The margin is the amount by which the consideration for the supply exceeds the consideration for the acquisition on the interest, unit or lease in question. Information about the application of the margin scheme is contained in Margin Scheme Fact Sheets which are available on the Tax Office website at www.ato.gov.au which have previously been sent to you. The following examples may assist you with you calculations/decisions regarding the sale of the courtyard home. Example 1 Chris is a builder who purchased a vacant block of land from a person that was not registered for GST in July 2009 for $245,000. He builds a house incurring $280,000 in building costs and sells it for $600,000. Chris's margin will be: selling price less purchase price equals margin $600,000 - $245,000 = $355,000 The GST payable on the sale will be: $355,000 11 = $32,273 Chris will also be able to claim GST credits on any of the building costs where GST was charged. | Detailed Reasoning - Example 2: Wayne is a builder who owns a vacant block of land that he purchased in 1997 for $78,000. He has constructed a house on the land and he sells it for $698,000 in July 2010. As Wayne has owned the land since before the start of GST on 1 July 2000, he can use the market value of the property in his margin scheme calculation. Wayne engages a valuer at the start of the development to provide a market valuation of the property as at 1 July 2000. The valuer provides a market value of $105,000. Wayne's margin will be: selling price less valuation equals margin $698,000 - $105,000 = $593,000 | Detailed Reasoning - The GST payable will be:: $593,000 11 = $53,909 The only difference between this example and example 1 is that because the seller owned the property before 1 July 2000 he can substitute the valuation of the property for the purchase price to work out his margin and GST payable.

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.