Goods and Services Tax Ruling GSTR 2006/8
Date of effect: 17 March 2005

What this ruling is about: This document was published prior to 1 July 2010 and was a public ruling for the purposes of former section 37 of the Taxation Administration Act 1953 and former section 105-60 of Schedule 1 to the Taxation Administration Act 1953. From 1 July 2010, this document is taken to be a public ruling under Division 358 of Schedule 1 to the Taxation Administration Act 1953. A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. [ Note: This is a consolidated version of this document. Refer to the Tax Office Legal Database (http://law.ato.gov.au) to check its currency and to view the details of all changes.]

Class of entities or scheme: 15. Subsection 75-5(1) deals with applying the margin scheme. It was amended by the 2005 Amendment Act. At the same time, subsection 75-5(1A) was inserted into the GST Act. The 2005 Amendment Act received Royal Assent on 29 June 2005. 16. Subsection 75-5(1A) and the amendment to subsection 75-5(1) apply to supplies that are: 17. In all other circumstances, subsection 75-5(1) prior to its amendment applies. | Amended subsection 75-5(1) and subsection 75-5(1A): 18. Subsection 75-5(1) provides that you may use the margin scheme if the supplier and the recipient have agreed in writing that the margin scheme is to apply. Subsection 75-5(1A) provides that the agreement must be made on or before making the supply, or within such further period as the Commissioner allows. [12] 19. The decision to allow or not allow a further period within which to make an agreement is a reviewable GST decision under item 51 in the table in subsection 110-50(2) of Schedule 1 to the TAA. | Subsection 75-5(1) prior to its amendment: 20. Subsection 75-5(1) prior to its amendment applies to supplies where the contract for the real property was entered into before 29 June 2005 [13] . 21. Similarly, if prior to 29 June 2005, the recipient of the supply had a right or option to purchase real property, then when the right or option is exercised, the supply of this property falls within subsection 75-5(1) prior to its amendment. [14] 22. It provides that the supplier 'may choose to apply the margin scheme in working out the amount of GST' if the supplier makes a taxable supply of real property. It does not expressly state when the choice to use the margin scheme needs to be made. 23. However, it is the Commissioner's view that, to be entitled to apply the margin scheme under subsection 75-5(1) prior to its amendment, the supplier must have chosen to apply the margin scheme at or before the time it makes the supply. If the choice is not made by that date, it is the Commissioner's view that it cannot be made at a later date. 24. Support for this view is found in the wording contained in Division 75. For example, the language of subsection 75-20(1) provides that an acquisition is not a creditable acquisition if the supply was a taxable supply under the margin scheme. This suggests that the choice to apply the margin scheme must have been made by the time the taxably supply was made for the supply to be a 'taxable supply under the margin scheme'. 25. Similarly, paragraph 75-25(1)(a) refers to 'a taxable supply of real property under the margin scheme' and subsection 75-30(1) refers to 'a supply of real property under the margin scheme'. These provisions appear to be founded on the assumption that it will be known that the supply is a supply under the margin scheme, which can only be the case if the supplier has chosen to apply the margin scheme by the time the supply is made. 26. However, in limited circumstances the Commissioner allows GST to be calculated as if the choice to apply the margin scheme had been made by the time the supply is made. [15] | Conditional application of the margin scheme: 27. Commonly, contracts specify that there is no GST payable on a supply, but that if the supply is taxable then the GST payable will be calculated under the margin scheme. In these circumstances, the Commissioner accepts that the requirements in paragraph 75-5(1A)(a) have been satisfied. 28. Similarly, where subsection 75-5(1), prior to its amendment applies, the Commissioner accepts that the supplier has made a choice to apply the margin scheme before the supply has been made. | Supplies made before 17 March 2005 to which the margin scheme cannot be applied: 29. Under the subsection 75-5(2), prior to its amendment, [16] you could not apply the margin scheme if you acquired the real property through a taxable supply and the GST on the supply was not calculated under the margin scheme. The effect of the former subsection 75-5(2) was that the margin scheme could only apply if the supply of the real property that you acquired was:

Ruling: When can you apply the margin scheme?: 15. Subsection 75-5(1) deals with applying the margin scheme. It was amended by the 2005 Amendment Act. At the same time, subsection 75-5(1A) was inserted into the GST Act. The 2005 Amendment Act received Royal Assent on 29 June 2005. 16. Subsection 75-5(1A) and the amendment to subsection 75-5(1) apply to supplies that are: 17. In all other circumstances, subsection 75-5(1) prior to its amendment applies. | Amended subsection 75-5(1) and subsection 75-5(1A): 18. Subsection 75-5(1) provides that you may use the margin scheme if the supplier and the recipient have agreed in writing that the margin scheme is to apply. Subsection 75-5(1A) provides that the agreement must be made on or before making the supply, or within such further period as the Commissioner allows. [12] 19. The decision to allow or not allow a further period within which to make an agreement is a reviewable GST decision under item 51 in the table in subsection 110-50(2) of Schedule 1 to the TAA. | Subsection 75-5(1) prior to its amendment: 20. Subsection 75-5(1) prior to its amendment applies to supplies where the contract for the real property was entered into before 29 June 2005 [13] . 21. Similarly, if prior to 29 June 2005, the recipient of the supply had a right or option to purchase real property, then when the right or option is exercised, the supply of this property falls within subsection 75-5(1) prior to its amendment. [14] 22. It provides that the supplier 'may choose to apply the margin scheme in working out the amount of GST' if the supplier makes a taxable supply of real property. It does not expressly state when the choice to use the margin scheme needs to be made. 23. However, it is the Commissioner's view that, to be entitled to apply the margin scheme under subsection 75-5(1) prior to its amendment, the supplier must have chosen to apply the margin scheme at or before the time it makes the supply. If the choice is not made by that date, it is the Commissioner's view that it cannot be made at a later date. 24. Support for this view is found in the wording contained in Division 75. For example, the language of subsection 75-20(1) provides that an acquisition is not a creditable acquisition if the supply was a taxable supply under the margin scheme. This suggests that the choice to apply the margin scheme must have been made by the time the taxably supply was made for the supply to be a 'taxable supply under the margin scheme'. 25. Similarly, paragraph 75-25(1)(a) refers to 'a taxable supply of real property under the margin scheme' and subsection 75-30(1) refers to 'a supply of real property under the margin scheme'. These provisions appear to be founded on the assumption that it will be known that the supply is a supply under the margin scheme, which can only be the case if the supplier has chosen to apply the margin scheme by the time the supply is made. 26. However, in limited circumstances the Commissioner allows GST to be calculated as if the choice to apply the margin scheme had been made by the time the supply is made. [15] | Conditional application of the margin scheme: 27. Commonly, contracts specify that there is no GST payable on a supply, but that if the supply is taxable then the GST payable will be calculated under the margin scheme. In these circumstances, the Commissioner accepts that the requirements in paragraph 75-5(1A)(a) have been satisfied. 28. Similarly, where subsection 75-5(1), prior to its amendment applies, the Commissioner accepts that the supplier has made a choice to apply the margin scheme before the supply has been made. | Supplies made before 17 March 2005 to which the margin scheme cannot be applied: 29. Under the subsection 75-5(2), prior to its amendment, [16] you could not apply the margin scheme if you acquired the real property through a taxable supply and the GST on the supply was not calculated under the margin scheme. The effect of the former subsection 75-5(2) was that the margin scheme could only apply if the supply of the real property that you acquired was: | Example 1: former subsection 75-5(2): 30. Tureia and Phil are both registered for GST purposes. Tureia is a builder. On 20 January 2002, Phil sold Tureia a block of land for $220,000. The sale of the land was a taxable supply, but Phil did not use the margin scheme. Instead, he accounted for GST of $20,000 (1/11th of $220,000) on the supply and issued Tureia with a tax invoice for the supply. Tureia intends to build a block of units on the land and sell them . 31. Tureia sells the units on 20 December 2004. Tureia could not use the margin scheme for the sale of the units, because she acquired the land through a taxable supply where the GST on the supply was calculated without using the margin scheme. Tureia must pay GST of 1/11th of the price for which she sells the units. She can claim an input tax credit of $20,000 for the acquisition of the land . | Supplies made on or after 17 March 2005 that are ineligible for the margin scheme: 32. Subsection 75-5(2) (as amended by the 2005 Amendment Act) provides that the margin scheme does not apply if you acquired the entire freehold interest, stratum unit or long-term lease through a supply that was ineligible for the margin scheme. Under subsection 75-5(3) a supply is ineligible for the margin scheme if: | Example 2: GST groups: 33. Apex Pty Ltd made a taxable supply of land to Beta Pty Ltd for $1.1 million without applying the margin scheme. Beta Pty Ltd is a member of a GST group but Apex Pty Ltd is not. Beta Pty Ltd sells the land to Cara Pty Ltd, another member of the GST group, for $2.2 million. The supply from Beta Pty Ltd to Cara Pty Ltd is not a taxable supply as both entities are members of the same GST group . [19] 34. Cara Pty Ltd then makes a taxable supply of the land to Delta Pty Ltd who is not a member of the GST group . 35. Cara Pty Ltd cannot use the margin scheme. The supply by Cara Pty Ltd is ineligible for the margin scheme under paragraph 75-5(3)(c) because the supply between Apex Pty and Beta Ltd was a taxable supply on which the GST was worked out without applying the margin scheme . | When do you supply or acquire real property?: 36. Most legal interests in Torrens title land are created or transferred only upon registration of the relevant instrument. 37. However, because of the practical difficulties of determining precisely when the instrument is registered or lodged for registration that would arise if a literal interpretation of the law were to be taken, the Commissioner considers that Parliament would have intended that, in the context of GST, a less strict approach should apply. 38. For that reason, the Commissioner considers that for the sale of a freehold interest or stratum unit, the supply and the acquisition is made at settlement as this is when the purchaser (or the purchaser's agent) obtains: 39. If the supply is made by way of sale or grant of a long-term lease, the lease is supplied and acquired when the recipient obtains a leasehold estate in the land. However, if registration of the lease or instrument of transfer is required under the State or Territory legislation applying when the lessee obtains the leasehold interest, the Commissioner considers that the lease is supplied and acquired when the recipient (or the recipient's agent) obtains: Again, as in the case of a sale of a freehold interest or stratum unit, this is at settlement. | Real property that a supplier acquired on or after 1 July 2000 under a contract entered into before 1 July 2000: 39A. The Commissioner considers that the Full Federal Court decision in Brady King v. Commissioner of Taxation [19A] ( Brady King ) is authority for the view that, for the purposes of subsection 75-10(3), an entity supplying real property is taken to have held or acquired a sufficient interest in that property at the time it entered into a contract for its acquisition. As such, if the entity entered into the contract before 1 July 2000, the entity may work out its GST liability under the margin scheme by reference to an approved valuation of the real property as at the day specified in subsection 75-10(3), even if settlement of the contract occurred on or after 1 July 2000 (assuming the requirements for application of the margin scheme are satisfied). 39B. In particular, under the Commissioner's view, if an entity entered into a contract for the acquisition of freehold title to land, out of which stratum units were to be created, the entity is taken, for the purposes of subsection 75-10(3), to have held or acquired a sufficient interest in the stratum units on entering into the contract. Similarly, if an entity entered into a contract for the acquisition of freehold title to land for subdivision, the entity is taken, for the purposes of subsection 75-10(3), to have held or acquired a sufficient interest in the subdivided lots at the time the entity entered into the contract. 39C. However, the Commissioner does not consider that it follows from the Brady King v. Commissioner of Taxation [19B] (Brady King ) decision that a supply or acquisition of the real property itself [19C] occurs at the time of entry into a contract for the sale and purchase of that property. As stated in paragraphs 38 and 39 of this Ruling, the Commissioner considers that the supply or acquisition of the property occurs on settlement of the contract. 39D. In Brady King , the Full Court decided that the taxpayer, by holding or acquiring contractual rights as the purchaser under an uncompleted contract of sale, held or acquired a sufficient interest in the relevant real property for the purposes of items 1 and 3 in the table in subsection 75-10(3). The Full Court did not decide that a taxable supply or creditable acquisition of real property is made on entering into a contract for sale and purchase. Such a conclusion would be contrary to the High Court judgment in Commissioner of Taxation v. Reliance Carpet Co Pty Limited . [19D] It is clear from that judgment that, in the case of a completed contract for the sale of real property, there is only a single taxable supply which occurs at settlement of the contract. 39E. The comments of Greenwood J in Aurora Developments Pty Ltd v. Commissioner of Taxation [19E] (Aurora Developments ) provide further support for the Commissioner's view that the Brady King decision is not relevant in determining the time at which the supply or acquisition of the real property itself occurs. In Aurora Developments , Greenwood J considered the expression 'the day of the supply' as it appears in subsection 38-325(2) in the context of a contract involving the supply of land. Greenwood J concluded, taking into account the circumstances of the case, that 'the day of supply' for the purposes of subsection 38-325(2) was the date at which settlement occurred and not, as the applicant had contended, the date at which the contract had been entered into. Relevantly, Greenwood J noted (at paragraph 258): 39F. Good and Services Tax Rulings GSTR 2000/21 and GSTR 2006/7 explain how the margin scheme applies to supplies of real property that the supplier is taken (for the purposes of subsection 75-10(3)) to have held or acquired a sufficient interest in before 1 July 2000. | Can you use the margin scheme when you supply a tenancy in common interest in real property?: 40. Subsection 75-5(1) describes the types of real property that can be supplied under the margin scheme, as follows: 41. Tenancy in common is defined in Butterworth's Australian Legal Dictionary , 1997, as: 42. In Nullagine Investments Pty Ltd v. Western Australian Club Inc (1993) 177 CLR 635 at 644 Brennan J described an interest held by a tenant in common as: 43. It is evident that when tenants in common acquire freehold land, each tenant has a freehold interest in the land. This will also be the case, if the tenants in common each have a freehold interest in a stratum unit. The sale of the freehold interest in either of these circumstances falls within paragraph 75-5(1)(a). 44. Similarly, if tenants in common have a leasehold interest in land or a stratum unit, the sale or grant of the leasehold interest in these circumstances falls within paragraph 75-5(1)(c). | How is the margin for the supply calculated under subsection 75-10(2)?: 45. Under subsection 75-10(2), the margin for the supply is the amount by which the consideration for the supply exceeds the consideration for the acquisition of the real property. 46. If the consideration for the acquisition is equal to or greater than the consideration for the supply, then the margin for the supply is zero. | Consideration for the supply and settlement adjustments: 47. The consideration for the supply and the consideration for the acquisition may be either monetary or non-monetary or both. The consideration for the supply or acquisition should take into account adjustments on settlement that are commonly made for rates, land tax and other outgoings. Goods and Services Tax Determination GSTD 2006/3 [20] contains a detailed discussion on this topic. | Consideration for the acquisition: 48. The consideration for the acquisition of the real property is the original purchase price after taking into account settlement adjustments. In the case of subdivided land or a stratum unit, the effect of section 75-15 is that the consideration for the acquisition is the corresponding proportion of the consideration for the real property that you acquired. If land that is part of the original broadacres is used for public purposes including roads, parklands or utilities ('lost land'), the acquisition consideration of the entire broadacres is apportioned to the total number of subdivided lots, so that the sum of the apportioned amounts equals the acquisition consideration for the broadacres (including the 'lost land'). 49. The consideration for the acquisition does not include costs that the supplier had incurred that were associated with their purchase of the real property, such as their legal expenses and stamp duty. It also does not include costs incurred in developing the real property, prior to or after its acquisition. | Alternative view: 50. The interest in real property that you acquire may differ from the interest that you supply. The most common examples of this are where you subdivide land or construct stratum units. 51. In these circumstances, the title for the interest that you supply is not created until the subdivided land or stratum unit is registered with the relevant authority. Because of this, one view of the meaning of consideration for the acquisition is that any expenditure incurred in subdividing the land or constructing the stratum unit forms part of the consideration for the acquisition. The rationale for this is that the acquisition of the interest only occurs when the interest that you supply is created. 52. The Commissioner does not accept this view as section 75-15 addresses circumstances where the interest that is supplied differs from the interest that was acquired. The effect of section 75-15 is that for subdivided land or stratum title units, the consideration for the acquisition is the corresponding proportion of the consideration for the land or premises that you acquired. 53. The Full Federal Court decision in Sterling Guardian Pty Limited v. Commissioner of Taxation [2006] FCAFC 12 confirms that costs incurred in developing real property do not form part of the consideration for the acquisition of the real property. | The effect of section 75-14 on supplies made on or after 17 March 2005: 54. The treatment of excluding costs incurred in developing real property from the calculation of the margin for the supply is confirmed by section 75-14. Section 75-14 is effective from 17 March 2005. 55. Section 75-14 makes it clear that in working out the consideration for the acquisition the following are disregarded: including acquisitions or work connected with bringing the real property into existence. | Example 3: section 75-14: 56. Bob is a builder. He purchases a block of vacant land for $180,000 and then constructs a house on the land. The cost of constructing the house is $100,000. Bob sells the house and land package for $400,000 . 57. The margin for the supply is $220,000 ($400,000 - $180,000). The cost of constructing the house is not part of the consideration for the acquisition of the land. Instead, Bob is entitled to input tax credits for any construction acquisitions (for example, building materials and subcontractors' services) that are creditable acquisitions . | Apportionment methods: 58. To ascertain the proportion of the purchase price that relates to the subdivided allotment or stratum unit, you may use any fair and reasonable method of apportionment. The method of apportionment used must result in the sum of the proportionate amount of the purchase price that relates to each subdivided allotment or stratum unit equalling in total, the actual consideration for the acquisition. You cannot change the method of apportionment after sales of allotments or stratum units have been made unless the changed method is applied to calculate the margin for all the sales. 59. Examples of some methods that you may use are as follows: 60. The methods above may be used provided they give a fair and reasonable result. Use of 'lots or sites' as an apportionment method would not give a fair and reasonable result if the size or value of the lots or sites varied significantly. 61. In some circumstances, you may use a combination of these or other fair and reasonable methods of apportionment. An example of where this may provide a fair and reasonable apportionment is a multi-staged development. | Example 4: area basis: 62. Josine is a property developer who is registered for GST purposes. She acquired a block of land of 2,000 square metres for $240,000. The block was of approximately uniform value per square metre. She subdivided the block into two allotments of 600 square metres each and one allotment of 800 square metres. As the lots are approximately of uniform value per square metre, Josine can use an area basis to ascertain the consideration for the acquisition of the subdivided allotments as it will provide a fair and reasonable result. Using this method, the consideration for the acquisition for each of the 600 square metre allotments is $72,000 (600/2,000 ? $240,000), whilst the consideration for the acquisition of the 800 square metre allotment is $96,000 (800/2,000 ? $240,000). 63. If Josine sells the 800 square metre allotment for $140,000, the margin for the supply is $44,000 ($140,000 - $96,000) and the GST payable on the supply is $4,000 . | Example 5: lots area: 64. Neville acquires a house and land for $500,000. Neville intends to demolish the house and construct four duplexes on the land. As each of the duplexes is of similar value Neville can use the lots method to establish the consideration for the acquisition for each of the duplexes. Using this method, the consideration for the acquisition of each duplex is $125,000 (1/4 ? $ 500,000 ). | Example 6: anticipated sales price: 65. Adam is a builder who is registered for GST purposes. He acquires land for $400,000. He subdivides the land and builds a house on each allotment. As the quality of the land varies between allotments, the anticipated sales method will provide a fair and reasonable apportionment method to ascertain the consideration for the acquisition for each of the house and land packages . 66. The anticipated sales price for each of the house and land packages and the consideration for the acquisition of each of them is shown below . | (anticipated sales price / total anticipated sales prices) x $400,000: 67. Adam subsequently sells Lot 1 for $190,000. The margin for the supply of Lot 1 is $150,000 ($190,000 - $40,000). The GST payable on the supply is $13,636.36 (1/11 of $150,000 ). | Example 7: multi-staged developments: 68. Johanna purchases land for $1.5 million which she intends to subdivide in three stages. As the land is of approximately uniform value per square metre, Johanna initially apportions the $1.5 million on an area basis between the three stages, giving values of $500,000 for stage one, $600,000 for stage two and $400,000 for stage three. When stage one is developed, Johanna can apportion the $500,000 acquisition consideration attributed to stage one between the allotments on an anticipated sales price basis provided this method gives a fair and reasonable result . | The effect of section 75-11 on supplies made on or after 17 March 2005: 69. The margin for the supply is not calculated under subsection 75-10(2) if the circumstances in subsection 75-11 apply, as subsection 75-10(2) is subject to the operation of section 75-11. 70. Section 75-11 applies to supplies made on or after 17 March 2005, and applies if real property was acquired from: 71. If more than one of these circumstances apply, the margin is worked out as follows: | Subsection 75-11(1): 72. For GST groups, subsection 75-11(1) deals with working out the margin for the supply if: 73. If these circumstances apply, the margin for your supply to the non-GST group member is worked out under either paragraph 75-11(1)(c) or (d). | Paragraph 75-11(1)(c): 74. Paragraph 75-11(1)(c) applies in working out the GST on your supply to the non-GST group member, if the real property was acquired by an entity that was a GST group member (or subsequently became one) from an entity that was not: 75. Under paragraph 75-11(1)(c), the margin for the supply is the amount by which the consideration for the supply you make to the non-GST group member exceeds the consideration for the real property acquired by the GST group member. This means that supplies between group members are effectively disregarded. | Example 8: GST groups where earlier supply made on or after 1 July 2000: 76. 77. In the context of the diagram above, the margin for the supply by Cara Pty Ltd to Delta Pty Ltd is the difference between the consideration for the supply of $220,000 and the consideration for the acquisition by Beta Pty Ltd of $110,000. The supply by Beta Pty Ltd to Cara Pty Ltd is effectively disregarded when working out the margin for the supply by Cara Pty Ltd. 78. In the diagram, Beta Pty Ltd was a member of the GST group when it acquired the real property. However, subsection 75-11(1) would also apply if Beta Pty Ltd was not a member of the GST group when it acquired the real property, but became a member of the GST group by the time Cara Pty Ltd made its supply to Delta Pty Ltd. | Paragraph 75-11(1)(d): 79. Paragraph 75-11(1)(d) applies in working out the GST on your supply to the non-GST group member, if the real property was acquired by an entity that was a GST group member (or subsequently became one) from an associated entity [21] that was not a member of the GST group. 80. Under paragraph 75-11(1)(d), the margin is the amount by which the consideration for the supply you make to the non-GST group member exceeds the GST-inclusive market value of the real property at the time of the last earlier supply. The supplies between group members are disregarded. | Example 9: GST groups and associates where earlier supply made on or after 1 July 2000: 81. 82. In the context of the diagram above, the margin for the supply by Cara Pty Ltd to Delta Pty Ltd is the difference between the consideration for the supply of $330,000 and the GST-inclusive market value of the real property of $110,000 at the time of the acquisition by Beta Pty Ltd. The supply by Beta Pty Ltd to Cara Pty Ltd is effectively disregarded when working out the margin for the supply by Cara Pty Ltd. 83. In the diagram Beta Pty Ltd was a member of the GST group when it acquired the real property. However, subsection 75-11(1) would also apply if Beta Pty Ltd was not a member of the GST group when it acquired the real property, but later became a member of the GST group. | Subsection 75-11(2): 84. Subsection 75-11(2) deals with working out the margin if: 85. Under subsection 75-11(2), the margin for the supply you make is the amount by which the consideration for the supply to the non-GST group member exceeds an approved valuation of the real property as at 1 July 2000. Approved valuations are discussed at paragraphs 115 to 128. | Example 10: GST group where earlier supply made before 1 July 2000: 86. 87. In the context of the diagram above, the margin for the supply by Cara Pty Ltd to Delta Pty Ltd is $220,000, being the difference between the consideration for the supply of $330,000 and the approved valuation of the real property as at 1 July 2000 of $110,000. The supply between Beta Pty Ltd and Cara Pty Ltd in June 2003 is effectively disregarded. | Supply of real property made on or after 17 March 2005 where the real property was acquired from a joint venture operator: 88. Subsection 75-11(2A) applies if the joint venture operator acquired the real property on or after 1 July 2000, while subsection 75-11(2B) applies if the joint venture operator acquired the property before that date. | Subsection 75-11(2A): 89. Subsection 75-11(2A) applies if you make a supply of real property under the margin scheme and all of the following apply: 90. If the joint venture operator acquired the real property from an entity that was not an associate at the time of the acquisition then under paragraph 75-11(2A)(d) the margin for the supply of the real property is the amount by which the consideration for the supply you make exceeds the consideration for the supply to the joint venture operator. This means that supplies between the joint venture operator and the participants of the GST joint venture are effectively disregarded. 91. If the joint venture operator acquired the real property from an entity that was an associate at the time of the acquisition, then under paragraph 75-11(2A)(e), the margin for the supply of the real property is the amount by which the consideration for the supply you make exceeds the GST inclusive market value of the real property at the time that the joint venture operator acquired the real property. | Subsection 75-11(2B): 92. Subsection 75-11(2B) applies if you make a supply of real property under the margin scheme and all of the following apply: 93. If subsection 75-11(2B) applies, the margin for the supply you make is the amount by which the consideration for the supply exceeds an approved valuation of the real property as at 1 July 2000. Approved valuations are discussed at paragraphs 115 to 132. | Supply of real property made on or after 17 March 2005 where the acquisition was from a deceased estate: 94. Subsections 75-11(3) and (4) address how the margin scheme works when you supply real property that you acquired through inheriting it. Section 195-1 specifies the manner in which real property can be inherited. It states that you inherit a freehold interest in land, a stratum unit or a long-term lease if you become an owner of the interest, unit or lease: 95. Subsection 75-11(3) applies if the deceased acquired the real property before 1 July 2000, while subsection 75-11(4) applies if the deceased acquired the property on or after that date. Both these subsections only apply if subsections 75-11(1) to (2B) do not apply (GST groups and GST joint ventures). 96. If you supply real property that you inherit, and the deceased acquired it before 1 July 2000, then paragraph 75-11(3)(ca) allows you to choose to use the consideration for the deceased's acquisition of the real property when calculating the margin for the supply. However, paragraph 75-11(3)(ca) can only apply if: 97. Under paragraph 75-11(3)(ca) the margin for the supply is the amount by which consideration for the supply you make exceeds the consideration for the deceased's acquisition of the property. 98. If you do not know the consideration for the deceased's acquisition of the real property, or you do not choose to calculate the margin for the supply under paragraph 75-11(3)(ca), then the margin is calculated under paragraph 75-11(3)(d) or 75-11(3)(e). | Paragraph 75-11(3)(d): 99. Paragraph 75-11(3)(d) applies if the margin for the supply is not calculated under paragraph 75-11(3)(ca) and immediately before the time that you inherited the real property, the deceased was neither registered or required to be registered for GST purposes. If paragraph 75-11(3)(d) applies, the margin for the supply is the amount by which the consideration for the supply exceeds an approved valuation of the real property as at the latest of: 100. It is evident from paragraph 6.29 of the Revised Explanatory Memorandum to the Tax Laws Amendment (2005 Measures No. 2) Bill 2005 that Parliament's intention is that the day on which you inherited the real property will ordinarily be the date of death of the deceased. [23] However, in some circumstances such as where a will is varied by a court order or the beneficiaries of the estate enter into a deed of arrangement, then the day on which you inherited the real property will be the date the court order or deed of arrangement becomes effective. | Paragraph 75-11(3)(e): 101. Paragraph 75-11(3)(e) applies if the margin for the supply is not calculated under paragraph 75-11(3)(ca) and immediately before the time that you inherited the real property, the deceased was registered or required to be registered for GST purposes. Under paragraph 75-11(3)(e) the margin for the supply is the amount by which the consideration for the supply exceeds an approved valuation of the real property as at the latest of: | Subsection 75-11(4): 102. If you supply real property that you inherit, and the deceased acquired it on or after 1 July 2000, then paragraph 75-11(4)(d) allows you to choose to use the consideration for the deceased's acquisition of the real property when calculating the margin for the supply. However, paragraph 75-11(4)(d) can only apply if: 103. Under paragraph 75-11(4)(d) the margin for the supply is the amount by which consideration for the supply you make exceeds the consideration for the deceased's acquisition of the property. 104. If you do not know the consideration for the deceased's acquisition of the real property, or you do not choose to use that consideration, then the margin for the supply is calculated under paragraph 75-11(4)(e). 105. Under paragraph 75-11(4)(e) the margin for the supply is the amount by which the consideration for the supply exceeds an approved valuation of the real property as at the day that the deceased acquired it. | Supply of real property made on or after 17 March 2005 where the real property was acquired from an associate: 106. If you supply real property that you acquired on or after 1 July 2000 from an entity that was your associate [24] at the time of acquisition, the margin for the supply is worked out under paragraph 75-11(7)(d), [25] provided that the other subsections in section 75-11 do not apply. 107. Under paragraph 75-11(7)(d), the margin is the amount by which the consideration for the supply exceeds the GST inclusive market value of the real property at the time of its acquisition. | Example 11: real property acquired from an associate: 108. 109. The margin for the supply by Cara Pty Ltd to Delta Pty Ltd is the amount by which the consideration for the supply exceeds the GST inclusive market value of the real property at the time of acquisition from Beta Pty Ltd. That is: Margin = $500,000 - $100,000 = $400,000 | Subsection 75-11(8): 110. Subsection 75-11(8) extends the application of subsection 75-11(7) to acquisitions through supplies made by the following: in the same way as Subdivision 72-D affects the operation of Division 72. 111. The effect of this is that subsection 75-11(7) applies not only to associates as defined in section 195-1 but also treats the following as if they were associates: | Supply of real property to an associate where the supply is made on or after 17 March 2005: 112. If you supply real property to an associate, section 75-13 deems the consideration for the supply to be the GST-inclusive market value of the real property at the time of the supply. | Example 12: supplies to associates: 113. 114. The GST inclusive market value of the supply at the time of the supply is treated as the consideration for the supply from Cara Pty Ltd to Delta Pty Ltd. The margin for the supply by Cara Pty Ltd to Delta Pty Ltd is the amount by which the 'deemed' consideration for the supply exceeds the consideration for the acquisition by Cara Pty Ltd. That is: Margin = $700,000 - $490,000 = $210,000 | Approved valuations: 115. Section 75-35 applies to supplies made on or after 17 March 2005. It provides that the Commissioner may by legislative instrument 'determine in writing requirements for making valuations' for the purposes of the margin scheme. 116. A legislative instrument, MSV 2005/1, was registered on 16 March 2005. It applies to supplies made between 17 March 2005 and 30 November 2005 inclusive. Under this Determination, the valuation may be determined in writing by a professional valuer. Section 75-35 is effective from 17 March 2005. As this Determination was made prior to section 75-35 being enacted it was made under paragraph 75-10(3)(b) of the GST Act. 117. MSV 2005/3 was registered on 9 September 2005. It replaces MSV 2005/1, and applies to supplies of real property made on or after 1 December 2005 and before 1 March 2010. [26] 117A. MSV 2009/1 was registered on 20 October 2009. It replaces MSV 2005/3, and applies to supplies of real property made on or after 1 March 2010. [26A] (MSV 2009/1 also includes a new method 4 which applies to certain taxable supplies of real property acquired before 1 July 2000). [26B] 118. MSV 2005/3 and MSV 2009/1 set out the requirements as determined by the Commissioner for the following valuation methods: 118A. The requirements for each of these valuation methods are discussed at paragraphs 118B to 118F of this Ruling and paragraphs 73 to 82 of Goods and Services Tax Ruling GSTR 2006/7. [26C] | Method 1: valuation of the market value determined by a professional valuer: 118B. The requirements for method 1 are the same under both MSV 2005/3 and MSV 2009/1. 118C. For a valuation by a professional valuer to be an approved valuation for the purposes of Division 75, that valuation must be made in accordance with the requirements specified in the determination. The valuation is the market value of the interest, unit or lease that you held at the valuation date (or, if item 2A applies, the interest you acquired on or after the valuation date) as determined in writing by a professional valuer, provided it is not contrary to professional standards recognised in Australia. | Method 2: valuation based on the consideration provided by a purchaser (that is, received by the supplier) under the contract of sale: 118D. The requirements set out under Method 2 in MSV 2005/3 refer to a valuation based on the consideration provided by a purchaser in a contract for the sale and purchase of real property. MSV 2009/1 merely rewords the requirements in MSV 2005/3 in terms of the consideration received by the supplier so that it is immediately clear that this method is not the same as the consideration method under subsection 75-10(2). 118E. For a valuation based on the sale contract price to be an approved valuation for the purposes of Division 75, that valuation must be made by adopting as the valuation the consideration provided by a purchaser (that is, received by the supplier) under the contract of sale of the real property that has been executed or exchanged before the valuation date between parties dealing at arm's length. [27A] | Method 3: State Government or Territory Government department valuation: 118F. The requirements set out under method 3 in MSV 2005/3 refer to a valuation based on the most recent unimproved value, site value, or the capital value of the land for rating or land tax purposes before the valuation date. Method 3 in MSV 2009/1 omits the words 'unimproved value, site value, or the capital value'. This clarifies that a valuation made by or on behalf of a State or a Territory Government department for rating or land tax purposes is eligible as an approved valuation under Method 3 regardless of how the valuation may be described under the relevant State or Territory legislation. 119. The effect of subsection 75-35(2) is that a valuation made in accordance with the requirements in the determination is an approved valuation. | Valuation dates: 120. Valuations are required to work out the margin for supplies of real property in particular circumstances under section 75-11. The table below sets out the valuation dates for the purposes of section 75-11. | Time to make valuations: 121. To work out the margin for the supply of real property, you require a valuation as at the valuation date. The valuation process itself does not have to be undertaken on that date. 122. The valuation must be made by the due date for lodgment of the supplier's Activity Statement for the tax period to which the GST on the supply is attributable, unless paragraph 123, 123A or 124 of this Ruling applis. 123. If the Commissioner has allowed a further period under paragraph 75-5(1A)(b) for the supplier and the recipient to agree in writing that the margin scheme is to apply in working out the GST on the supply, under MSV 2005/3, the valuation must be made by the later of: 123A. Under MSV 2009/1, the time by which the valuation must be made has been extended by two weeks in recognition that this is a more realistic timeframe. The valuation must be made by the later of: 124. If the valuation is not undertaken within the time periods specified in paragraphs 122 to 123A of this Ruling, the Commissioner may for good reason allow an additional period to obtain a valuation. [33] 125. The time periods mentioned in paragraphs 122 to 124 for obtaining valuations do not affect the date by which the choice or agreement to apply the margin scheme must be made - see paragraphs 18 to 28. | What is the real property that you value?: 126. If any of the provisions of section 75-11 require you to obtain an approved valuation, the real property that you value is the real property that is in existence at the valuation date. This will not always be the real property that is supplied. 127. Often the real property that is supplied was not in existence at the valuation date. Examples of this are: 128. If the real property that is supplied was not in existence at the valuation date but is part of the real property that was in existence at that date, the valuation must be made as follows: | Example 13: valuing real property that is subdivided after the valuation date: 129. | Professional valuers: 130. A professional valuer [34] is: You may use an in-house employee who is a professional valuer. 130A. In MSV 2009/1, the definition of a professional valuer also includes: 130B. Although members of the Royal Institution of Chartered Surveyors or Australian Valuers Institute are not specifically referred to in the definition of 'professional valuer' in MSV 2005/3, they would have been covered by paragraphs (a) and (b) of the definition above. To make this clear, MSV 2009/1 specifically includes members of these bodies in the definition of 'professional valuer'. 131. A supplier may engage a professional valuer to undertake the valuation or accept a valuation made by a professional valuer commissioned by another party, for example, a purchaser. | Documentation that a professional valuer is required to provide: 132. For supplies of real property made on or after 1 December 2005, clause 10 of MSV 2005/3 and subclause 13(5) of MSV 2009/1 state that the valuation must include a signed certificate which specifies: | Can you apply the margin scheme when you make a supply of real property that has separately identifiable taxable and non-taxable (that is, GST-free or input taxed) parts?: 133. If a supply of real property is a mixed supply because it has separately identifiable taxable and non-taxable (that is, GST-free or input taxed) parts, then the margin scheme can apply to the taxable component. Examples of supplies that may be mixed supplies are a supply of a building that contains areas that are input taxed residential premises and taxable commercial premises or a supply of a building that includes new residential premises as well as an area supplied as a GST-free supply of a going concern. 134. In these circumstances, if the margin for the supply is calculated under subsection 75-10(2), the consideration for the supply and the consideration for the acquisition, are the amounts of the consideration that relate to the taxable component of the supply. 135. If the circumstances in section 75-11 apply, the margin is the amount by which the consideration for the supply exceeds an approved valuation or the GST-inclusive market value of the real property as the case may be. 136. You may use any fair and reasonable method of apportionment to ascertain the consideration for the supply and either that relates to the taxable component of the supply. | Approved valuation: 137. The table in paragraph 120 specifies when an approved valuation is required to work out the margin for the supply. 138. If an approved valuation is required to work out the margin for the taxable component of a supply, the valuation is to be obtained for the entire real property supplied. The valuation is then apportioned on any fair and reasonable basis to ascertain the part of the valuation that relates to the taxable component of the supply. | GST inclusive market value: 139. Paragraphs 75-11(1)(d), 75-11(2A)(e) and 75-11(7)(d) require the margin to be worked out by reference to the GST inclusive market value of the real property supplied. 140. Paragraph 75-11(1)(d) applies when a member of a GST group acquires real property on or after 1 July 2000 from an entity that is not a member of the GST group but is an associate of the GST group member. 141. Paragraph 75-11(2A)(e) applies if the joint venture operator acquired the real property from an entity that was an associate at the time of the acquisition. 142. Paragraph 75-11(7)(d) applies if you supply real property that you acquired on or after 1 July 2000 from an entity that was your associate at the time of acquisition. 143. If the GST inclusive market value is required to work out the margin for the taxable component of a supply, the GST-inclusive market value is to be obtained for the entire real property supplied. The GST inclusive market value is then apportioned on any fair and reasonable basis to ascertain the part that relates to the taxable component of the supply. | How do you calculate the GST inclusive sale price and the margin?: 144. For the purposes of Division 75 the GST inclusive sale price is the GST exclusive price plus the GST payable on the margin. The following example sets out how to calculate the GST inclusive price when initially only the GST exclusive price is known. | Example 14: where only the GST exclusive price is known: 145. The GST exclusive price is $96,364 and the consideration for the acquisition is $60,000. The GST inclusive price is calculated using the formula: GST inclusive price = ((E - C) / 10) + E Where: E is the GST exclusive price; and C is the supplier's consideration for the acquisition. GST inclusive price = ((96,364 - 60,000) / 10) + 96,364 = $100,000 The margin for the supply = $100,000 - $60,000 = $40,000. 146. If the margin for the supply is calculated using an approved valuation or the GST inclusive market value the same equation is used. However, C in the equation will be the approved valuation or the GST inclusive market value. | Subsection 75-22(1): 147. You may apply the margin scheme to the supply of real property even though you acquired part of the real property through a supply that was ineligible for the margin scheme. An example of this is where a supplier acquires two adjoining properties and one of the properties was acquired as a taxable supply without using the margin scheme, and the other property was acquired as: 148. If you apply the margin scheme to a later supply of real property acquired in this manner, you have an increasing adjustment under subsection 75-22(1). The increasing adjustment is an amount equal to the previously attributed input tax credit amount [36] for the acquisition of the real property that was acquired as a taxable supply without using the margin scheme. 149. Subsection 75-22(1) applies to supplies made on or after 17 March 2005 and may apply to: | Subdivision of broadacres: 150. If you acquire adjoining properties, one of which is acquired through a supply that is ineligible for the margin scheme, and you subdivide the properties, the margin scheme can be used for the supply of some of the subdivided lots. 151. The margin scheme: | Example 15: subdivision of broadacres: 152. This is diagrammatically represented below as: 153. In the context of the diagram, the real property that would have been ineligible for the margin scheme is shaded. 154. The margin scheme cannot apply to supplies of Lots 1 to 3 as they were acquired entirely through a supply that was ineligible for the margin scheme under subsection 75-5(2). The margin scheme can apply to Lots 7 to 9 because subsection 75-5(2) does not apply to make the supply of them ineligible. The margin scheme can also apply to the supply of Lots 4 to 6 as the entire interest in each of those lots was not acquired through a supply that was ineligible for the margin scheme. They are therefore not excluded by subsection 75-5(2). 155. If the margin scheme is applied to supplies of Lots 4 to 6, there are increasing adjustments under subsection 75-22(1). The increasing adjustment for each supply is a proportionate amount of the previously attributed input tax credit amount for the acquisition of the land. You may use any fair and reasonable basis of apportionment to work out the increasing adjustment. | Stratum unit: 156. 'Stratum unit' is defined in section 195-1 as having 'the meaning given by subsection 124-190(3) of the Income Tax Assessment Act 1997'. Subsection 124-190(3) defines a stratum unit as 'a lot or unit (however described in an Australian law or a foreign law relating to strata title or similar title) and any accompanying common property.' The Commissioner considers that the reference to 'similar title' in the definition of stratum unit includes other arrangements such as group title arrangements. 157. The definition of stratum unit in section 195-1 encompasses a legal arrangement where real property is divided into units or allotments and common property. The common property is usually held by a body corporate as agent for the land owners as tenants in common. 158. For the purpose of the discussion below, the term 'strata title' refers to a strata plan where the boundaries of unit are defined by reference to the structures (for example, walls floors and ceilings). For example, a single building divided into units. 159. In the discussion below the term 'group title' refers to arrangements where the real property is divided into allotments of land and common property. The boundaries are defined by reference to land rather than by reference to building structure. | Strata title: 160. If you acquire adjoining properties, one of which was acquired through a supply that is ineligible for the margin scheme, and you then construct stratum units on the properties, then ordinarily some part of the common property will be constructed on land that was acquired through a supply that: 161. In these circumstances, all of the stratum units have been partly derived from land that was acquired through a supply that was ineligible for the margin scheme. The supply of these units can be made under the margin scheme as subsection 75-5(2) does not apply. However, because the units were partly acquired through land that was ineligible for the margin scheme you have an increasing adjustment under subsection 75-22(1). The increasing adjustment is the proportionate amount of the input tax credits for the acquisition of the land referable to the supply of each stratum unit. | Example 16: stratum units: 162. 163. In the context of the diagram, the real property that was acquired through a supply that would have been ineligible for the margin scheme is shaded. 164. The common property in this example is made up of property that was acquired through a supply that was ineligible for the margin scheme as well as property that was eligible for the margin scheme. 165. Therefore, the margin scheme can apply to the supply of all the stratum units as the entire interest in each of the stratum units, including the common property, was not acquired through a supply that was ineligible for the margin scheme. They are therefore not excluded from the margin scheme by subsection 75-5(2). 166. If the margin scheme is applied to the supply of any of the stratum units, there is an increasing adjustment under subsection 75-22(1). The increasing adjustment is equal to the proportion of the input tax credit for the acquisition of the land that relates to the stratum unit supplied. To ascertain the extent of the increasing adjustment, you may use any reasonable basis of apportionment. | Group title: 167. The margin scheme can be used in group title arrangements where: | Subsection 75-22(2): 168. Subsection 75-22(2) is effective from 17 March 2005. Under subsection 75-22(2), you may use the margin scheme if you inherit real property and the deceased acquired part of that property through a supply that was ineligible for the margin scheme. An example of this is where: 169. If you apply the margin scheme in these circumstances you have an increasing adjustment to the extent of any input tax credits for the acquisition of the land. 170. The increasing adjustment is worked out in the same manner as indicated in paragraphs 155 and 161. | Supplies made on or after 17 March 2005 where the full consideration for the acquisition has not been paid: 171. If an entity makes supplies of real property but does not pay the full contract price for the acquisition of that property, section 75-12 applies. It provides that the margin for the supply is worked out as the amount by which the consideration for the supply exceeds the consideration paid for the acquisition (which may not be the consideration for the acquisition reflected in the contract). Section 75-12 is effective from 17 March 2005. | Example 17: full consideration not paid for supply: 172. Terry supplies real property to Adam. The consideration for the supply is $770,000. However, Adam only pays Terry $700,000. Adam then sells the property to Wendy for $1,100,000 and uses the margin scheme to calculate the GST payable on the supply. When Adam calculates the margin for the supply, the consideration for the acquisition is the amount he paid Terry ($700,000 ). 173. The margin for the supply is $400,000 ($1,100,000 - $700,000 ). | Decreasing adjustment for later payment of consideration: 174. If section 75-12 applies, and you later make a further payment of the acquisition consideration, you have a decreasing adjustment under section 75-27. Subsection 75-27(2), which is effective from 17 March 2005, provides that the amount of the decreasing adjustment is equal to 1/11th of the further amount of consideration paid. | Example 18: decreasing adjustment where consideration for a supply paid later: 175. Using the facts in the example shown above, if Adam subsequently pays Terry the remaining $70,000, he has a decreasing adjustment of $6,364 (1/11 ? $ 70,000 ). | Representatives of an incapacitated entity and the application of the margin scheme: 175A. A representative of an incapacitated entity [35A] in its capacity as a representative, may make a supply of the real property that was acquired by the incapacitated entity. In this circumstance, Division 58, which deals with representatives of incapacitated entities, treats the supply as made by the incapacitated entity. [35B] As a result, for the purpose of the margin scheme, the term "you'' in Division 75 is, when used to refer to the supplier of real property, taken to mean the incapacitated entity. 175B. If all the requirements for applying the margin scheme under Division 75 are satisfied when the incapacitated entity is taken to make the supply, the representative of the incapacitated entity may apply the margin scheme in respect of the supply. However, providing the requirements for a representative to be liable for GST under section 58-10 are met, it is the representative of the incapacitated entity (and not the incapacitated entity) that will be liable for the GST calculated under the margin scheme. | Entitlement to input tax credits: 176. If the GST payable on a supply of real property has been worked out under the margin scheme, the acquisition of the property by the recipient of the supply is not a creditable acquisition. This means that the recipient is not entitled to an input tax credit for the acquisition of the real property. [37] | Tax invoices: 177. A supplier is not required to issue a tax invoice for a taxable supply that is solely a supply of real property under the margin scheme. [38] | Record keeping requirements: 178. Section 382-5 of Schedule 1 to the TAA requires you to keep records that record and explain all transactions and other acts that you engage in that are relevant to the supply. You must retain these records for at least 5 years after the completion of the transactions or acts to which they relate. 179. As well as retaining accounting records documenting the transaction, you must also retain records showing how you have applied the margin scheme. Examples of these records include: 180. For supplies made on or after 17 March 2005, the following records must also be retained: 181. For supplies made on or after 29 June 2005 [39] to which subsection 75-5(1A) applies, the following records must also be retained: 182. Below is a detailed contents list for this Goods and Services Tax Ruling: Commissioner of Taxation 26 April 2006 Previously issued in draft form as GSTR 2005/D4

Examples: Example 1: former subsection 75-5(2) 30. Tureia and Phil are both registered for GST purposes. Tureia is a builder. On 20 January 2002, Phil sold Tureia a block of land for $220,000. The sale of the land was a taxable supply, but Phil did not use the margin scheme. Instead, he accounted for GST of $20,000 (1/11th of $220,000) on the supply and issued Tureia with a tax invoice for the supply. Tureia intends to build a block of units on the land and sell them . 31. Tureia sells the units on 20 December 2004. Tureia could not use the margin scheme for the sale of the units, because she acquired the land through a taxable supply where the GST on the supply was calculated without using the margin scheme. Tureia must pay GST of 1/11th of the price for which she sells the units. She can claim an input tax credit of $20,000 for the acquisition of the land . Supplies made on or after 17 March 2005 that are ineligible for the margin scheme 32. Subsection 75-5(2) (as amended by the 2005 Amendment Act) provides that the margin scheme does not apply if you acquired the entire freehold interest, stratum unit or long-term lease through a supply that was ineligible for the margin scheme. Under subsection 75-5(3) a supply is ineligible for the margin scheme if: | Example 2: GST groups 33. Apex Pty Ltd made a taxable supply of land to Beta Pty Ltd for $1.1 million without applying the margin scheme. Beta Pty Ltd is a member of a GST group but Apex Pty Ltd is not. Beta Pty Ltd sells the land to Cara Pty Ltd, another member of the GST group, for $2.2 million. The supply from Beta Pty Ltd to Cara Pty Ltd is not a taxable supply as both entities are members of the same GST group . [19] 34. Cara Pty Ltd then makes a taxable supply of the land to Delta Pty Ltd who is not a member of the GST group . 35. Cara Pty Ltd cannot use the margin scheme. The supply by Cara Pty Ltd is ineligible for the margin scheme under paragraph 75-5(3)(c) because the supply between Apex Pty and Beta Ltd was a taxable supply on which the GST was worked out without applying the margin scheme . When do you supply or acquire real property? 36. Most legal interests in Torrens title land are created or transferred only upon registration of the relevant instrument. 37. However, because of the practical difficulties of determining precisely when the instrument is registered or lodged for registration that would arise if a literal interpretation of the law were to be taken, the Commissioner considers that Parliament would have intended that, in the context of GST, a less strict approach should apply. 38. For that reason, the Commissioner considers that for the sale of a freehold interest or stratum unit, the supply and the acquisition is made at settlement as this is when the purchaser (or the purchaser's agent) obtains: 39. If the supply is made by way of sale or grant of a long-term lease, the lease is supplied and acquired when the recipient obtains a leasehold estate in the land. However, if registration of the lease or instrument of transfer is required under the State or Territory legislation applying when the lessee obtains the leasehold interest, the Commissioner considers that the lease is supplied and acquired when the recipient (or the recipient's agent) obtains: Again, as in the case of a sale of a freehold interest or stratum unit, this is at settlement. Real property that a supplier acquired on or after 1 July 2000 under a contract entered into before 1 July 2000 39A. The Commissioner considers that the Full Federal Court decision in Brady King v. Commissioner of Taxation [19A] ( Brady King ) is authority for the view that, for the purposes of subsection 75-10(3), an entity supplying real property is taken to have held or acquired a sufficient interest in that property at the time it entered into a contract for its acquisition. As such, if the entity entered into the contract before 1 July 2000, the entity may work out its GST liability under the margin scheme by reference to an approved valuation of the real property as at the day specified in subsection 75-10(3), even if settlement of the contract occurred on or after 1 July 2000 (assuming the requirements for application of the margin scheme are satisfied). 39B. In particular, under the Commissioner's view, if an entity entered into a contract for the acquisition of freehold title to land, out of which stratum units were to be created, the entity is taken, for the purposes of subsection 75-10(3), to have held or acquired a sufficient interest in the stratum units on entering into the contract. Similarly, if an entity entered into a contract for the acquisition of freehold title to land for subdivision, the entity is taken, for the purposes of subsection 75-10(3), to have held or acquired a sufficient interest in the subdivided lots at the time the entity entered into the contract. 39C. However, the Commissioner does not consider that it follows from the Brady King v. Commissioner of Taxation [19B] (Brady King ) decision that a supply or acquisition of the real property itself [19C] occurs at the time of entry into a contract for the sale and purchase of that property. As stated in paragraphs 38 and 39 of this Ruling, the Commissioner considers that the supply or acquisition of the property occurs on settlement of the contract. 39D. In Brady King , the Full Court decided that the taxpayer, by holding or acquiring contractual rights as the purchaser under an uncompleted contract of sale, held or acquired a sufficient interest in the relevant real property for the purposes of items 1 and 3 in the table in subsection 75-10(3). The Full Court did not decide that a taxable supply or creditable acquisition of real property is made on entering into a contract for sale and purchase. Such a conclusion would be contrary to the High Court judgment in Commissioner of Taxation v. Reliance Carpet Co Pty Limited . [19D] It is clear from that judgment that, in the case of a completed contract for the sale of real property, there is only a single taxable supply which occurs at settlement of the contract. 39E. The comments of Greenwood J in Aurora Developments Pty Ltd v. Commissioner of Taxation [19E] (Aurora Developments ) provide further support for the Commissioner's view that the Brady King decision is not relevant in determining the time at which the supply or acquisition of the real property itself occurs. In Aurora Developments , Greenwood J considered the expression 'the day of the supply' as it appears in subsection 38-325(2) in the context of a contract involving the supply of land. Greenwood J concluded, taking into account the circumstances of the case, that 'the day of supply' for the purposes of subsection 38-325(2) was the date at which settlement occurred and not, as the applicant had contended, the date at which the contract had been entered into. Relevantly, Greenwood J noted (at paragraph 258): 39F. Good and Services Tax Rulings GSTR 2000/21 and GSTR 2006/7 explain how the margin scheme applies to supplies of real property that the supplier is taken (for the purposes of subsection 75-10(3)) to have held or acquired a sufficient interest in before 1 July 2000. Can you use the margin scheme when you supply a tenancy in common interest in real property? 40. Subsection 75-5(1) describes the types of real property that can be supplied under the margin scheme, as follows: 41. Tenancy in common is defined in Butterworth's Australian Legal Dictionary , 1997, as: 42. In Nullagine Investments Pty Ltd v. Western Australian Club Inc (1993) 177 CLR 635 at 644 Brennan J described an interest held by a tenant in common as: 43. It is evident that when tenants in common acquire freehold land, each tenant has a freehold interest in the land. This will also be the case, if the tenants in common each have a freehold interest in a stratum unit. The sale of the freehold interest in either of these circumstances falls within paragraph 75-5(1)(a). 44. Similarly, if tenants in common have a leasehold interest in land or a stratum unit, the sale or grant of the leasehold interest in these circumstances falls within paragraph 75-5(1)(c). How is the margin for the supply calculated under subsection 75-10(2)? 45. Under subsection 75-10(2), the margin for the supply is the amount by which the consideration for the supply exceeds the consideration for the acquisition of the real property. 46. If the consideration for the acquisition is equal to or greater than the consideration for the supply, then the margin for the supply is zero. Consideration for the supply and settlement adjustments 47. The consideration for the supply and the consideration for the acquisition may be either monetary or non-monetary or both. The consideration for the supply or acquisition should take into account adjustments on settlement that are commonly made for rates, land tax and other outgoings. Goods and Services Tax Determination GSTD 2006/3 [20] contains a detailed discussion on this topic. Consideration for the acquisition 48. The consideration for the acquisition of the real property is the original purchase price after taking into account settlement adjustments. In the case of subdivided land or a stratum unit, the effect of section 75-15 is that the consideration for the acquisition is the corresponding proportion of the consideration for the real property that you acquired. If land that is part of the original broadacres is used for public purposes including roads, parklands or utilities ('lost land'), the acquisition consideration of the entire broadacres is apportioned to the total number of subdivided lots, so that the sum of the apportioned amounts equals the acquisition consideration for the broadacres (including the 'lost land'). 49. The consideration for the acquisition does not include costs that the supplier had incurred that were associated with their purchase of the real property, such as their legal expenses and stamp duty. It also does not include costs incurred in developing the real property, prior to or after its acquisition. Alternative view 50. The interest in real property that you acquire may differ from the interest that you supply. The most common examples of this are where you subdivide land or construct stratum units. 51. In these circumstances, the title for the interest that you supply is not created until the subdivided land or stratum unit is registered with the relevant authority. Because of this, one view of the meaning of consideration for the acquisition is that any expenditure incurred in subdividing the land or constructing the stratum unit forms part of the consideration for the acquisition. The rationale for this is that the acquisition of the interest only occurs when the interest that you supply is created. 52. The Commissioner does not accept this view as section 75-15 addresses circumstances where the interest that is supplied differs from the interest that was acquired. The effect of section 75-15 is that for subdivided land or stratum title units, the consideration for the acquisition is the corresponding proportion of the consideration for the land or premises that you acquired. 53. The Full Federal Court decision in Sterling Guardian Pty Limited v. Commissioner of Taxation [2006] FCAFC 12 confirms that costs incurred in developing real property do not form part of the consideration for the acquisition of the real property. The effect of section 75-14 on supplies made on or after 17 March 2005 54. The treatment of excluding costs incurred in developing real property from the calculation of the margin for the supply is confirmed by section 75-14. Section 75-14 is effective from 17 March 2005. 55. Section 75-14 makes it clear that in working out the consideration for the acquisition the following are disregarded: including acquisitions or work connected with bringing the real property into existence. | Example 3: section 75-14 56. Bob is a builder. He purchases a block of vacant land for $180,000 and then constructs a house on the land. The cost of constructing the house is $100,000. Bob sells the house and land package for $400,000 . 57. The margin for the supply is $220,000 ($400,000 - $180,000). The cost of constructing the house is not part of the consideration for the acquisition of the land. Instead, Bob is entitled to input tax credits for any construction acquisitions (for example, building materials and subcontractors' services) that are creditable acquisitions . Apportionment methods 58. To ascertain the proportion of the purchase price that relates to the subdivided allotment or stratum unit, you may use any fair and reasonable method of apportionment. The method of apportionment used must result in the sum of the proportionate amount of the purchase price that relates to each subdivided allotment or stratum unit equalling in total, the actual consideration for the acquisition. You cannot change the method of apportionment after sales of allotments or stratum units have been made unless the changed method is applied to calculate the margin for all the sales. 59. Examples of some methods that you may use are as follows: 60. The methods above may be used provided they give a fair and reasonable result. Use of 'lots or sites' as an apportionment method would not give a fair and reasonable result if the size or value of the lots or sites varied significantly. 61. In some circumstances, you may use a combination of these or other fair and reasonable methods of apportionment. An example of where this may provide a fair and reasonable apportionment is a multi-staged development. | Example 4: area basis 62. Josine is a property developer who is registered for GST purposes. She acquired a block of land of 2,000 square metres for $240,000. The block was of approximately uniform value per square metre. She subdivided the block into two allotments of 600 square metres each and one allotment of 800 square metres. As the lots are approximately of uniform value per square metre, Josine can use an area basis to ascertain the consideration for the acquisition of the subdivided allotments as it will provide a fair and reasonable result. Using this method, the consideration for the acquisition for each of the 600 square metre allotments is $72,000 (600/2,000 ? $240,000), whilst the consideration for the acquisition of the 800 square metre allotment is $96,000 (800/2,000 ? $240,000). 63. If Josine sells the 800 square metre allotment for $140,000, the margin for the supply is $44,000 ($140,000 - $96,000) and the GST payable on the supply is $4,000 . | Example 5: lots area 64. Neville acquires a house and land for $500,000. Neville intends to demolish the house and construct four duplexes on the land. As each of the duplexes is of similar value Neville can use the lots method to establish the consideration for the acquisition for each of the duplexes. Using this method, the consideration for the acquisition of each duplex is $125,000 (1/4 ? $ 500,000 ). | Example 6: anticipated sales price 65. Adam is a builder who is registered for GST purposes. He acquires land for $400,000. He subdivides the land and builds a house on each allotment. As the quality of the land varies between allotments, the anticipated sales method will provide a fair and reasonable apportionment method to ascertain the consideration for the acquisition for each of the house and land packages . 66. The anticipated sales price for each of the house and land packages and the consideration for the acquisition of each of them is shown below . Consideration for the acquisition (anticipated sales price / total anticipated sales prices) x $400,000 67. Adam subsequently sells Lot 1 for $190,000. The margin for the supply of Lot 1 is $150,000 ($190,000 - $40,000). The GST payable on the supply is $13,636.36 (1/11 of $150,000 ). | Example 7: multi-staged developments 68. Johanna purchases land for $1.5 million which she intends to subdivide in three stages. As the land is of approximately uniform value per square metre, Johanna initially apportions the $1.5 million on an area basis between the three stages, giving values of $500,000 for stage one, $600,000 for stage two and $400,000 for stage three. When stage one is developed, Johanna can apportion the $500,000 acquisition consideration attributed to stage one between the allotments on an anticipated sales price basis provided this method gives a fair and reasonable result . The effect of section 75-11 on supplies made on or after 17 March 2005 69. The margin for the supply is not calculated under subsection 75-10(2) if the circumstances in subsection 75-11 apply, as subsection 75-10(2) is subject to the operation of section 75-11. 70. Section 75-11 applies to supplies made on or after 17 March 2005, and applies if real property was acquired from: 71. If more than one of these circumstances apply, the margin is worked out as follows: Supply of real property made on or after 17 March 2005 if the acquisition is from a fellow member of a GST group Subsection 75-11(1) 72. For GST groups, subsection 75-11(1) deals with working out the margin for the supply if: 73. If these circumstances apply, the margin for your supply to the non-GST group member is worked out under either paragraph 75-11(1)(c) or (d). Paragraph 75-11(1)(c) 74. Paragraph 75-11(1)(c) applies in working out the GST on your supply to the non-GST group member, if the real property was acquired by an entity that was a GST group member (or subsequently became one) from an entity that was not: 75. Under paragraph 75-11(1)(c), the margin for the supply is the amount by which the consideration for the supply you make to the non-GST group member exceeds the consideration for the real property acquired by the GST group member. This means that supplies between group members are effectively disregarded. | Example 8: GST groups where earlier supply made on or after 1 July 2000 76. 77. In the context of the diagram above, the margin for the supply by Cara Pty Ltd to Delta Pty Ltd is the difference between the consideration for the supply of $220,000 and the consideration for the acquisition by Beta Pty Ltd of $110,000. The supply by Beta Pty Ltd to Cara Pty Ltd is effectively disregarded when working out the margin for the supply by Cara Pty Ltd. 78. In the diagram, Beta Pty Ltd was a member of the GST group when it acquired the real property. However, subsection 75-11(1) would also apply if Beta Pty Ltd was not a member of the GST group when it acquired the real property, but became a member of the GST group by the time Cara Pty Ltd made its supply to Delta Pty Ltd. Paragraph 75-11(1)(d) 79. Paragraph 75-11(1)(d) applies in working out the GST on your supply to the non-GST group member, if the real property was acquired by an entity that was a GST group member (or subsequently became one) from an associated entity [21] that was not a member of the GST group. 80. Under paragraph 75-11(1)(d), the margin is the amount by which the consideration for the supply you make to the non-GST group member exceeds the GST-inclusive market value of the real property at the time of the last earlier supply. The supplies between group members are disregarded. | Example 9: GST groups and associates where earlier supply made on or after 1 July 2000 81. 82. In the context of the diagram above, the margin for the supply by Cara Pty Ltd to Delta Pty Ltd is the difference between the consideration for the supply of $330,000 and the GST-inclusive market value of the real property of $110,000 at the time of the acquisition by Beta Pty Ltd. The supply by Beta Pty Ltd to Cara Pty Ltd is effectively disregarded when working out the margin for the supply by Cara Pty Ltd. 83. In the diagram Beta Pty Ltd was a member of the GST group when it acquired the real property. However, subsection 75-11(1) would also apply if Beta Pty Ltd was not a member of the GST group when it acquired the real property, but later became a member of the GST group. Subsection 75-11(2) 84. Subsection 75-11(2) deals with working out the margin if: 85. Under subsection 75-11(2), the margin for the supply you make is the amount by which the consideration for the supply to the non-GST group member exceeds an approved valuation of the real property as at 1 July 2000. Approved valuations are discussed at paragraphs 115 to 128. | Example 10: GST group where earlier supply made before 1 July 2000 86. 87. In the context of the diagram above, the margin for the supply by Cara Pty Ltd to Delta Pty Ltd is $220,000, being the difference between the consideration for the supply of $330,000 and the approved valuation of the real property as at 1 July 2000 of $110,000. The supply between Beta Pty Ltd and Cara Pty Ltd in June 2003 is effectively disregarded. Supply of real property made on or after 17 March 2005 where the real property was acquired from a joint venture operator 88. Subsection 75-11(2A) applies if the joint venture operator acquired the real property on or after 1 July 2000, while subsection 75-11(2B) applies if the joint venture operator acquired the property before that date. Subsection 75-11(2A) 89. Subsection 75-11(2A) applies if you make a supply of real property under the margin scheme and all of the following apply: 90. If the joint venture operator acquired the real property from an entity that was not an associate at the time of the acquisition then under paragraph 75-11(2A)(d) the margin for the supply of the real property is the amount by which the consideration for the supply you make exceeds the consideration for the supply to the joint venture operator. This means that supplies between the joint venture operator and the participants of the GST joint venture are effectively disregarded. 91. If the joint venture operator acquired the real property from an entity that was an associate at the time of the acquisition, then under paragraph 75-11(2A)(e), the margin for the supply of the real property is the amount by which the consideration for the supply you make exceeds the GST inclusive market value of the real property at the time that the joint venture operator acquired the real property. Subsection 75-11(2B) 92. Subsection 75-11(2B) applies if you make a supply of real property under the margin scheme and all of the following apply: 93. If subsection 75-11(2B) applies, the margin for the supply you make is the amount by which the consideration for the supply exceeds an approved valuation of the real property as at 1 July 2000. Approved valuations are discussed at paragraphs 115 to 132. Supply of real property made on or after 17 March 2005 where the acquisition was from a deceased estate 94. Subsections 75-11(3) and (4) address how the margin scheme works when you supply real property that you acquired through inheriting it. Section 195-1 specifies the manner in which real property can be inherited. It states that you inherit a freehold interest in land, a stratum unit or a long-term lease if you become an owner of the interest, unit or lease: 95. Subsection 75-11(3) applies if the deceased acquired the real property before 1 July 2000, while subsection 75-11(4) applies if the deceased acquired the property on or after that date. Both these subsections only apply if subsections 75-11(1) to (2B) do not apply (GST groups and GST joint ventures). 96. If you supply real property that you inherit, and the deceased acquired it before 1 July 2000, then paragraph 75-11(3)(ca) allows you to choose to use the consideration for the deceased's acquisition of the real property when calculating the margin for the supply. However, paragraph 75-11(3)(ca) can only apply if: 97. Under paragraph 75-11(3)(ca) the margin for the supply is the amount by which consideration for the supply you make exceeds the consideration for the deceased's acquisition of the property. 98. If you do not know the consideration for the deceased's acquisition of the real property, or you do not choose to calculate the margin for the supply under paragraph 75-11(3)(ca), then the margin is calculated under paragraph 75-11(3)(d) or 75-11(3)(e). Paragraph 75-11(3)(d) 99. Paragraph 75-11(3)(d) applies if the margin for the supply is not calculated under paragraph 75-11(3)(ca) and immediately before the time that you inherited the real property, the deceased was neither registered or required to be registered for GST purposes. If paragraph 75-11(3)(d) applies, the margin for the supply is the amount by which the consideration for the supply exceeds an approved valuation of the real property as at the latest of: 100. It is evident from paragraph 6.29 of the Revised Explanatory Memorandum to the Tax Laws Amendment (2005 Measures No. 2) Bill 2005 that Parliament's intention is that the day on which you inherited the real property will ordinarily be the date of death of the deceased. [23] However, in some circumstances such as where a will is varied by a court order or the beneficiaries of the estate enter into a deed of arrangement, then the day on which you inherited the real property will be the date the court order or deed of arrangement becomes effective. Paragraph 75-11(3)(e) 101. Paragraph 75-11(3)(e) applies if the margin for the supply is not calculated under paragraph 75-11(3)(ca) and immediately before the time that you inherited the real property, the deceased was registered or required to be registered for GST purposes. Under paragraph 75-11(3)(e) the margin for the supply is the amount by which the consideration for the supply exceeds an approved valuation of the real property as at the latest of: Subsection 75-11(4) 102. If you supply real property that you inherit, and the deceased acquired it on or after 1 July 2000, then paragraph 75-11(4)(d) allows you to choose to use the consideration for the deceased's acquisition of the real property when calculating the margin for the supply. However, paragraph 75-11(4)(d) can only apply if: 103. Under paragraph 75-11(4)(d) the margin for the supply is the amount by which consideration for the supply you make exceeds the consideration for the deceased's acquisition of the property. 104. If you do not know the consideration for the deceased's acquisition of the real property, or you do not choose to use that consideration, then the margin for the supply is calculated under paragraph 75-11(4)(e). 105. Under paragraph 75-11(4)(e) the margin for the supply is the amount by which the consideration for the supply exceeds an approved valuation of the real property as at the day that the deceased acquired it. Supply of real property made on or after 17 March 2005 where the real property was acquired from an associate 106. If you supply real property that you acquired on or after 1 July 2000 from an entity that was your associate [24] at the time of acquisition, the margin for the supply is worked out under paragraph 75-11(7)(d), [25] provided that the other subsections in section 75-11 do not apply. 107. Under paragraph 75-11(7)(d), the margin is the amount by which the consideration for the supply exceeds the GST inclusive market value of the real property at the time of its acquisition. | Example 11: real property acquired from an associate 108. 109. The margin for the supply by Cara Pty Ltd to Delta Pty Ltd is the amount by which the consideration for the supply exceeds the GST inclusive market value of the real property at the time of acquisition from Beta Pty Ltd. That is: Margin = $500,000 - $100,000 = $400,000 Subsection 75-11(8) 110. Subsection 75-11(8) extends the application of subsection 75-11(7) to acquisitions through supplies made by the following: in the same way as Subdivision 72-D affects the operation of Division 72. 111. The effect of this is that subsection 75-11(7) applies not only to associates as defined in section 195-1 but also treats the following as if they were associates: Supply of real property to an associate where the supply is made on or after 17 March 2005 112. If you supply real property to an associate, section 75-13 deems the consideration for the supply to be the GST-inclusive market value of the real property at the time of the supply. | Example 12: supplies to associates 113. 114. The GST inclusive market value of the supply at the time of the supply is treated as the consideration for the supply from Cara Pty Ltd to Delta Pty Ltd. The margin for the supply by Cara Pty Ltd to Delta Pty Ltd is the amount by which the 'deemed' consideration for the supply exceeds the consideration for the acquisition by Cara Pty Ltd. That is: Margin = $700,000 - $490,000 = $210,000 Approved valuations 115. Section 75-35 applies to supplies made on or after 17 March 2005. It provides that the Commissioner may by legislative instrument 'determine in writing requirements for making valuations' for the purposes of the margin scheme. 116. A legislative instrument, MSV 2005/1, was registered on 16 March 2005. It applies to supplies made between 17 March 2005 and 30 November 2005 inclusive. Under this Determination, the valuation may be determined in writing by a professional valuer. Section 75-35 is effective from 17 March 2005. As this Determination was made prior to section 75-35 being enacted it was made under paragraph 75-10(3)(b) of the GST Act. 117. MSV 2005/3 was registered on 9 September 2005. It replaces MSV 2005/1, and applies to supplies of real property made on or after 1 December 2005 and before 1 March 2010. [26] 117A. MSV 2009/1 was registered on 20 October 2009. It replaces MSV 2005/3, and applies to supplies of real property made on or after 1 March 2010. [26A] (MSV 2009/1 also includes a new method 4 which applies to certain taxable supplies of real property acquired before 1 July 2000). [26B] 118. MSV 2005/3 and MSV 2009/1 set out the requirements as determined by the Commissioner for the following valuation methods: 118A. The requirements for each of these valuation methods are discussed at paragraphs 118B to 118F of this Ruling and paragraphs 73 to 82 of Goods and Services Tax Ruling GSTR 2006/7. [26C] Method 1: valuation of the market value determined by a professional valuer 118B. The requirements for method 1 are the same under both MSV 2005/3 and MSV 2009/1. 118C. For a valuation by a professional valuer to be an approved valuation for the purposes of Division 75, that valuation must be made in accordance with the requirements specified in the determination. The valuation is the market value of the interest, unit or lease that you held at the valuation date (or, if item 2A applies, the interest you acquired on or after the valuation date) as determined in writing by a professional valuer, provided it is not contrary to professional standards recognised in Australia. Method 2: valuation based on the consideration provided by a purchaser (that is, received by the supplier) under the contract of sale 118D. The requirements set out under Method 2 in MSV 2005/3 refer to a valuation based on the consideration provided by a purchaser in a contract for the sale and purchase of real property. MSV 2009/1 merely rewords the requirements in MSV 2005/3 in terms of the consideration received by the supplier so that it is immediately clear that this method is not the same as the consideration method under subsection 75-10(2). 118E. For a valuation based on the sale contract price to be an approved valuation for the purposes of Division 75, that valuation must be made by adopting as the valuation the consideration provided by a purchaser (that is, received by the supplier) under the contract of sale of the real property that has been executed or exchanged before the valuation date between parties dealing at arm's length. [27A] Method 3: State Government or Territory Government department valuation 118F. The requirements set out under method 3 in MSV 2005/3 refer to a valuation based on the most recent unimproved value, site value, or the capital value of the land for rating or land tax purposes before the valuation date. Method 3 in MSV 2009/1 omits the words 'unimproved value, site value, or the capital value'. This clarifies that a valuation made by or on behalf of a State or a Territory Government department for rating or land tax purposes is eligible as an approved valuation under Method 3 regardless of how the valuation may be described under the relevant State or Territory legislation. 119. The effect of subsection 75-35(2) is that a valuation made in accordance with the requirements in the determination is an approved valuation. Valuation dates 120. Valuations are required to work out the margin for supplies of real property in particular circumstances under section 75-11. The table below sets out the valuation dates for the purposes of section 75-11. Time to make valuations 121. To work out the margin for the supply of real property, you require a valuation as at the valuation date. The valuation process itself does not have to be undertaken on that date. 122. The valuation must be made by the due date for lodgment of the supplier's Activity Statement for the tax period to which the GST on the supply is attributable, unless paragraph 123, 123A or 124 of this Ruling applis. 123. If the Commissioner has allowed a further period under paragraph 75-5(1A)(b) for the supplier and the recipient to agree in writing that the margin scheme is to apply in working out the GST on the supply, under MSV 2005/3, the valuation must be made by the later of: 123A. Under MSV 2009/1, the time by which the valuation must be made has been extended by two weeks in recognition that this is a more realistic timeframe. The valuation must be made by the later of: 124. If the valuation is not undertaken within the time periods specified in paragraphs 122 to 123A of this Ruling, the Commissioner may for good reason allow an additional period to obtain a valuation. [33] 125. The time periods mentioned in paragraphs 122 to 124 for obtaining valuations do not affect the date by which the choice or agreement to apply the margin scheme must be made - see paragraphs 18 to 28. What is the real property that you value? 126. If any of the provisions of section 75-11 require you to obtain an approved valuation, the real property that you value is the real property that is in existence at the valuation date. This will not always be the real property that is supplied. 127. Often the real property that is supplied was not in existence at the valuation date. Examples of this are: 128. If the real property that is supplied was not in existence at the valuation date but is part of the real property that was in existence at that date, the valuation must be made as follows: | Example 13: valuing real property that is subdivided after the valuation date 129. Professional valuers 130. A professional valuer [34] is: You may use an in-house employee who is a professional valuer. 130A. In MSV 2009/1, the definition of a professional valuer also includes: 130B. Although members of the Royal Institution of Chartered Surveyors or Australian Valuers Institute are not specifically referred to in the definition of 'professional valuer' in MSV 2005/3, they would have been covered by paragraphs (a) and (b) of the definition above. To make this clear, MSV 2009/1 specifically includes members of these bodies in the definition of 'professional valuer'. 131. A supplier may engage a professional valuer to undertake the valuation or accept a valuation made by a professional valuer commissioned by another party, for example, a purchaser. Documentation that a professional valuer is required to provide 132. For supplies of real property made on or after 1 December 2005, clause 10 of MSV 2005/3 and subclause 13(5) of MSV 2009/1 state that the valuation must include a signed certificate which specifies: Can you apply the margin scheme when you make a supply of real property that has separately identifiable taxable and non-taxable (that is, GST-free or input taxed) parts? 133. If a supply of real property is a mixed supply because it has separately identifiable taxable and non-taxable (that is, GST-free or input taxed) parts, then the margin scheme can apply to the taxable component. Examples of supplies that may be mixed supplies are a supply of a building that contains areas that are input taxed residential premises and taxable commercial premises or a supply of a building that includes new residential premises as well as an area supplied as a GST-free supply of a going concern. 134. In these circumstances, if the margin for the supply is calculated under subsection 75-10(2), the consideration for the supply and the consideration for the acquisition, are the amounts of the consideration that relate to the taxable component of the supply. 135. If the circumstances in section 75-11 apply, the margin is the amount by which the consideration for the supply exceeds an approved valuation or the GST-inclusive market value of the real property as the case may be. 136. You may use any fair and reasonable method of apportionment to ascertain the consideration for the supply and either that relates to the taxable component of the supply. Approved valuation 137. The table in paragraph 120 specifies when an approved valuation is required to work out the margin for the supply. 138. If an approved valuation is required to work out the margin for the taxable component of a supply, the valuation is to be obtained for the entire real property supplied. The valuation is then apportioned on any fair and reasonable basis to ascertain the part of the valuation that relates to the taxable component of the supply. GST inclusive market value 139. Paragraphs 75-11(1)(d), 75-11(2A)(e) and 75-11(7)(d) require the margin to be worked out by reference to the GST inclusive market value of the real property supplied. 140. Paragraph 75-11(1)(d) applies when a member of a GST group acquires real property on or after 1 July 2000 from an entity that is not a member of the GST group but is an associate of the GST group member. 141. Paragraph 75-11(2A)(e) applies if the joint venture operator acquired the real property from an entity that was an associate at the time of the acquisition. 142. Paragraph 75-11(7)(d) applies if you supply real property that you acquired on or after 1 July 2000 from an entity that was your associate at the time of acquisition. 143. If the GST inclusive market value is required to work out the margin for the taxable component of a supply, the GST-inclusive market value is to be obtained for the entire real property supplied. The GST inclusive market value is then apportioned on any fair and reasonable basis to ascertain the part that relates to the taxable component of the supply. How do you calculate the GST inclusive sale price and the margin? 144. For the purposes of Division 75 the GST inclusive sale price is the GST exclusive price plus the GST payable on the margin. The following example sets out how to calculate the GST inclusive price when initially only the GST exclusive price is known. | Example 14: where only the GST exclusive price is known 145. The GST exclusive price is $96,364 and the consideration for the acquisition is $60,000. The GST inclusive price is calculated using the formula: GST inclusive price = ((E - C) / 10) + E Where: E is the GST exclusive price; and C is the supplier's consideration for the acquisition. GST inclusive price = ((96,364 - 60,000) / 10) + 96,364 = $100,000 The margin for the supply = $100,000 - $60,000 = $40,000. 146. If the margin for the supply is calculated using an approved valuation or the GST inclusive market value the same equation is used. However, C in the equation will be the approved valuation or the GST inclusive market value. Increasing adjustments for supplies made on or after 17 March 2005, where part of the acquisition was ineligible for the margin scheme Subsection 75-22(1) 147. You may apply the margin scheme to the supply of real property even though you acquired part of the real property through a supply that was ineligible for the margin scheme. An example of this is where a supplier acquires two adjoining properties and one of the properties was acquired as a taxable supply without using the margin scheme, and the other property was acquired as: 148. If you apply the margin scheme to a later supply of real property acquired in this manner, you have an increasing adjustment under subsection 75-22(1). The increasing adjustment is an amount equal to the previously attributed input tax credit amount [36] for the acquisition of the real property that was acquired as a taxable supply without using the margin scheme. 149. Subsection 75-22(1) applies to supplies made on or after 17 March 2005 and may apply to: Subdivision of broadacres 150. If you acquire adjoining properties, one of which is acquired through a supply that is ineligible for the margin scheme, and you subdivide the properties, the margin scheme can be used for the supply of some of the subdivided lots. 151. The margin scheme: | Example 15: subdivision of broadacres 152. This is diagrammatically represented below as: 153. In the context of the diagram, the real property that would have been ineligible for the margin scheme is shaded. 154. The margin scheme cannot apply to supplies of Lots 1 to 3 as they were acquired entirely through a supply that was ineligible for the margin scheme under subsection 75-5(2). The margin scheme can apply to Lots 7 to 9 because subsection 75-5(2) does not apply to make the supply of them ineligible. The margin scheme can also apply to the supply of Lots 4 to 6 as the entire interest in each of those lots was not acquired through a supply that was ineligible for the margin scheme. They are therefore not excluded by subsection 75-5(2). 155. If the margin scheme is applied to supplies of Lots 4 to 6, there are increasing adjustments under subsection 75-22(1). The increasing adjustment for each supply is a proportionate amount of the previously attributed input tax credit amount for the acquisition of the land. You may use any fair and reasonable basis of apportionment to work out the increasing adjustment. Stratum unit 156. 'Stratum unit' is defined in section 195-1 as having 'the meaning given by subsection 124-190(3) of the Income Tax Assessment Act 1997'. Subsection 124-190(3) defines a stratum unit as 'a lot or unit (however described in an Australian law or a foreign law relating to strata title or similar title) and any accompanying common property.' The Commissioner considers that the reference to 'similar title' in the definition of stratum unit includes other arrangements such as group title arrangements. 157. The definition of stratum unit in section 195-1 encompasses a legal arrangement where real property is divided into units or allotments and common property. The common property is usually held by a body corporate as agent for the land owners as tenants in common. 158. For the purpose of the discussion below, the term 'strata title' refers to a strata plan where the boundaries of unit are defined by reference to the structures (for example, walls floors and ceilings). For example, a single building divided into units. 159. In the discussion below the term 'group title' refers to arrangements where the real property is divided into allotments of land and common property. The boundaries are defined by reference to land rather than by reference to building structure. Strata title 160. If you acquire adjoining properties, one of which was acquired through a supply that is ineligible for the margin scheme, and you then construct stratum units on the properties, then ordinarily some part of the common property will be constructed on land that was acquired through a supply that: 161. In these circumstances, all of the stratum units have been partly derived from land that was acquired through a supply that was ineligible for the margin scheme. The supply of these units can be made under the margin scheme as subsection 75-5(2) does not apply. However, because the units were partly acquired through land that was ineligible for the margin scheme you have an increasing adjustment under subsection 75-22(1). The increasing adjustment is the proportionate amount of the input tax credits for the acquisition of the land referable to the supply of each stratum unit. | Example 16: stratum units 162. 163. In the context of the diagram, the real property that was acquired through a supply that would have been ineligible for the margin scheme is shaded. 164. The common property in this example is made up of property that was acquired through a supply that was ineligible for the margin scheme as well as property that was eligible for the margin scheme. 165. Therefore, the margin scheme can apply to the supply of all the stratum units as the entire interest in each of the stratum units, including the common property, was not acquired through a supply that was ineligible for the margin scheme. They are therefore not excluded from the margin scheme by subsection 75-5(2). 166. If the margin scheme is applied to the supply of any of the stratum units, there is an increasing adjustment under subsection 75-22(1). The increasing adjustment is equal to the proportion of the input tax credit for the acquisition of the land that relates to the stratum unit supplied. To ascertain the extent of the increasing adjustment, you may use any reasonable basis of apportionment. Group title 167. The margin scheme can be used in group title arrangements where: Subsection 75-22(2) 168. Subsection 75-22(2) is effective from 17 March 2005. Under subsection 75-22(2), you may use the margin scheme if you inherit real property and the deceased acquired part of that property through a supply that was ineligible for the margin scheme. An example of this is where: 169. If you apply the margin scheme in these circumstances you have an increasing adjustment to the extent of any input tax credits for the acquisition of the land. 170. The increasing adjustment is worked out in the same manner as indicated in paragraphs 155 and 161. Supplies made on or after 17 March 2005 where the full consideration for the acquisition has not been paid 171. If an entity makes supplies of real property but does not pay the full contract price for the acquisition of that property, section 75-12 applies. It provides that the margin for the supply is worked out as the amount by which the consideration for the supply exceeds the consideration paid for the acquisition (which may not be the consideration for the acquisition reflected in the contract). Section 75-12 is effective from 17 March 2005. | Example 17: full consideration not paid for supply 172. Terry supplies real property to Adam. The consideration for the supply is $770,000. However, Adam only pays Terry $700,000. Adam then sells the property to Wendy for $1,100,000 and uses the margin scheme to calculate the GST payable on the supply. When Adam calculates the margin for the supply, the consideration for the acquisition is the amount he paid Terry ($700,000 ). 173. The margin for the supply is $400,000 ($1,100,000 - $700,000 ). Decreasing adjustment for later payment of consideration 174. If section 75-12 applies, and you later make a further payment of the acquisition consideration, you have a decreasing adjustment under section 75-27. Subsection 75-27(2), which is effective from 17 March 2005, provides that the amount of the decreasing adjustment is equal to 1/11th of the further amount of consideration paid. | Example 18: decreasing adjustment where consideration for a supply paid later 175. Using the facts in the example shown above, if Adam subsequently pays Terry the remaining $70,000, he has a decreasing adjustment of $6,364 (1/11 ? $ 70,000 ). Representatives of an incapacitated entity and the application of the margin scheme 175A. A representative of an incapacitated entity [35A] in its capacity as a representative, may make a supply of the real property that was acquired by the incapacitated entity. In this circumstance, Division 58, which deals with representatives of incapacitated entities, treats the supply as made by the incapacitated entity. [35B] As a result, for the purpose of the margin scheme, the term "you'' in Division 75 is, when used to refer to the supplier of real property, taken to mean the incapacitated entity. 175B. If all the requirements for applying the margin scheme under Division 75 are satisfied when the incapacitated entity is taken to make the supply, the representative of the incapacitated entity may apply the margin scheme in respect of the supply. However, providing the requirements for a representative to be liable for GST under section 58-10 are met, it is the representative of the incapacitated entity (and not the incapacitated entity) that will be liable for the GST calculated under the margin scheme. Entitlement to input tax credits 176. If the GST payable on a supply of real property has been worked out under the margin scheme, the acquisition of the property by the recipient of the supply is not a creditable acquisition. This means that the recipient is not entitled to an input tax credit for the acquisition of the real property. [37] Tax invoices 177. A supplier is not required to issue a tax invoice for a taxable supply that is solely a supply of real property under the margin scheme. [38] Record keeping requirements 178. Section 382-5 of Schedule 1 to the TAA requires you to keep records that record and explain all transactions and other acts that you engage in that are relevant to the supply. You must retain these records for at least 5 years after the completion of the transactions or acts to which they relate. 179. As well as retaining accounting records documenting the transaction, you must also retain records showing how you have applied the margin scheme. Examples of these records include: 180. For supplies made on or after 17 March 2005, the following records must also be retained: 181. For supplies made on or after 29 June 2005 [39] to which subsection 75-5(1A) applies, the following records must also be retained: 182. Below is a detailed contents list for this Goods and Services Tax Ruling: Commissioner of Taxation 26 April 2006 Previously issued in draft form as GSTR 2005/D4

Appendix: When can you apply the margin scheme?: 15. Subsection 75-5(1) deals with applying the margin scheme. It was amended by the 2005 Amendment Act. At the same time, subsection 75-5(1A) was inserted into the GST Act. The 2005 Amendment Act received Royal Assent on 29 June 2005. 16. Subsection 75-5(1A) and the amendment to subsection 75-5(1) apply to supplies that are: 17. In all other circumstances, subsection 75-5(1) prior to its amendment applies. | Amended subsection 75-5(1) and subsection 75-5(1A): 18. Subsection 75-5(1) provides that you may use the margin scheme if the supplier and the recipient have agreed in writing that the margin scheme is to apply. Subsection 75-5(1A) provides that the agreement must be made on or before making the supply, or within such further period as the Commissioner allows. [12] 19. The decision to allow or not allow a further period within which to make an agreement is a reviewable GST decision under item 51 in the table in subsection 110-50(2) of Schedule 1 to the TAA. | Subsection 75-5(1) prior to its amendment: 20. Subsection 75-5(1) prior to its amendment applies to supplies where the contract for the real property was entered into before 29 June 2005 [13] . 21. Similarly, if prior to 29 June 2005, the recipient of the supply had a right or option to purchase real property, then when the right or option is exercised, the supply of this property falls within subsection 75-5(1) prior to its amendment. [14] 22. It provides that the supplier 'may choose to apply the margin scheme in working out the amount of GST' if the supplier makes a taxable supply of real property. It does not expressly state when the choice to use the margin scheme needs to be made. 23. However, it is the Commissioner's view that, to be entitled to apply the margin scheme under subsection 75-5(1) prior to its amendment, the supplier must have chosen to apply the margin scheme at or before the time it makes the supply. If the choice is not made by that date, it is the Commissioner's view that it cannot be made at a later date. 24. Support for this view is found in the wording contained in Division 75. For example, the language of subsection 75-20(1) provides that an acquisition is not a creditable acquisition if the supply was a taxable supply under the margin scheme. This suggests that the choice to apply the margin scheme must have been made by the time the taxably supply was made for the supply to be a 'taxable supply under the margin scheme'. 25. Similarly, paragraph 75-25(1)(a) refers to 'a taxable supply of real property under the margin scheme' and subsection 75-30(1) refers to 'a supply of real property under the margin scheme'. These provisions appear to be founded on the assumption that it will be known that the supply is a supply under the margin scheme, which can only be the case if the supplier has chosen to apply the margin scheme by the time the supply is made. 26. However, in limited circumstances the Commissioner allows GST to be calculated as if the choice to apply the margin scheme had been made by the time the supply is made. [15] | Conditional application of the margin scheme: 27. Commonly, contracts specify that there is no GST payable on a supply, but that if the supply is taxable then the GST payable will be calculated under the margin scheme. In these circumstances, the Commissioner accepts that the requirements in paragraph 75-5(1A)(a) have been satisfied. 28. Similarly, where subsection 75-5(1), prior to its amendment applies, the Commissioner accepts that the supplier has made a choice to apply the margin scheme before the supply has been made. | Supplies made before 17 March 2005 to which the margin scheme cannot be applied: 29. Under the subsection 75-5(2), prior to its amendment, [16] you could not apply the margin scheme if you acquired the real property through a taxable supply and the GST on the supply was not calculated under the margin scheme. The effect of the former subsection 75-5(2) was that the margin scheme could only apply if the supply of the real property that you acquired was: | Example 1: former subsection 75-5(2): 30. Tureia and Phil are both registered for GST purposes. Tureia is a builder. On 20 January 2002, Phil sold Tureia a block of land for $220,000. The sale of the land was a taxable supply, but Phil did not use the margin scheme. Instead, he accounted for GST of $20,000 (1/11th of $220,000) on the supply and issued Tureia with a tax invoice for the supply. Tureia intends to build a block of units on the land and sell them . 31. Tureia sells the units on 20 December 2004. Tureia could not use the margin scheme for the sale of the units, because she acquired the land through a taxable supply where the GST on the supply was calculated without using the margin scheme. Tureia must pay GST of 1/11th of the price for which she sells the units. She can claim an input tax credit of $20,000 for the acquisition of the land . | Supplies made on or after 17 March 2005 that are ineligible for the margin scheme: 32. Subsection 75-5(2) (as amended by the 2005 Amendment Act) provides that the margin scheme does not apply if you acquired the entire freehold interest, stratum unit or long-term lease through a supply that was ineligible for the margin scheme. Under subsection 75-5(3) a supply is ineligible for the margin scheme if: | Example 2: GST groups: 33. Apex Pty Ltd made a taxable supply of land to Beta Pty Ltd for $1.1 million without applying the margin scheme. Beta Pty Ltd is a member of a GST group but Apex Pty Ltd is not. Beta Pty Ltd sells the land to Cara Pty Ltd, another member of the GST group, for $2.2 million. The supply from Beta Pty Ltd to Cara Pty Ltd is not a taxable supply as both entities are members of the same GST group . [19] 34. Cara Pty Ltd then makes a taxable supply of the land to Delta Pty Ltd who is not a member of the GST group . 35. Cara Pty Ltd cannot use the margin scheme. The supply by Cara Pty Ltd is ineligible for the margin scheme under paragraph 75-5(3)(c) because the supply between Apex Pty and Beta Ltd was a taxable supply on which the GST was worked out without applying the margin scheme . | When do you supply or acquire real property?: 36. Most legal interests in Torrens title land are created or transferred only upon registration of the relevant instrument. 37. However, because of the practical difficulties of determining precisely when the instrument is registered or lodged for registration that would arise if a literal interpretation of the law were to be taken, the Commissioner considers that Parliament would have intended that, in the context of GST, a less strict approach should apply. 38. For that reason, the Commissioner considers that for the sale of a freehold interest or stratum unit, the supply and the acquisition is made at settlement as this is when the purchaser (or the purchaser's agent) obtains: 39. If the supply is made by way of sale or grant of a long-term lease, the lease is supplied and acquired when the recipient obtains a leasehold estate in the land. However, if registration of the lease or instrument of transfer is required under the State or Territory legislation applying when the lessee obtains the leasehold interest, the Commissioner considers that the lease is supplied and acquired when the recipient (or the recipient's agent) obtains: Again, as in the case of a sale of a freehold interest or stratum unit, this is at settlement. | Real property that a supplier acquired on or after 1 July 2000 under a contract entered into before 1 July 2000: 39A. The Commissioner considers that the Full Federal Court decision in Brady King v. Commissioner of Taxation [19A] ( Brady King ) is authority for the view that, for the purposes of subsection 75-10(3), an entity supplying real property is taken to have held or acquired a sufficient interest in that property at the time it entered into a contract for its acquisition. As such, if the entity entered into the contract before 1 July 2000, the entity may work out its GST liability under the margin scheme by reference to an approved valuation of the real property as at the day specified in subsection 75-10(3), even if settlement of the contract occurred on or after 1 July 2000 (assuming the requirements for application of the margin scheme are satisfied). 39B. In particular, under the Commissioner's view, if an entity entered into a contract for the acquisition of freehold title to land, out of which stratum units were to be created, the entity is taken, for the purposes of subsection 75-10(3), to have held or acquired a sufficient interest in the stratum units on entering into the contract. Similarly, if an entity entered into a contract for the acquisition of freehold title to land for subdivision, the entity is taken, for the purposes of subsection 75-10(3), to have held or acquired a sufficient interest in the subdivided lots at the time the entity entered into the contract. 39C. However, the Commissioner does not consider that it follows from the Brady King v. Commissioner of Taxation [19B] (Brady King ) decision that a supply or acquisition of the real property itself [19C] occurs at the time of entry into a contract for the sale and purchase of that property. As stated in paragraphs 38 and 39 of this Ruling, the Commissioner considers that the supply or acquisition of the property occurs on settlement of the contract. 39D. In Brady King , the Full Court decided that the taxpayer, by holding or acquiring contractual rights as the purchaser under an uncompleted contract of sale, held or acquired a sufficient interest in the relevant real property for the purposes of items 1 and 3 in the table in subsection 75-10(3). The Full Court did not decide that a taxable supply or creditable acquisition of real property is made on entering into a contract for sale and purchase. Such a conclusion would be contrary to the High Court judgment in Commissioner of Taxation v. Reliance Carpet Co Pty Limited . [19D] It is clear from that judgment that, in the case of a completed contract for the sale of real property, there is only a single taxable supply which occurs at settlement of the contract. 39E. The comments of Greenwood J in Aurora Developments Pty Ltd v. Commissioner of Taxation [19E] (Aurora Developments ) provide further support for the Commissioner's view that the Brady King decision is not relevant in determining the time at which the supply or acquisition of the real property itself occurs. In Aurora Developments , Greenwood J considered the expression 'the day of the supply' as it appears in subsection 38-325(2) in the context of a contract involving the supply of land. Greenwood J concluded, taking into account the circumstances of the case, that 'the day of supply' for the purposes of subsection 38-325(2) was the date at which settlement occurred and not, as the applicant had contended, the date at which the contract had been entered into. Relevantly, Greenwood J noted (at paragraph 258): 39F. Good and Services Tax Rulings GSTR 2000/21 and GSTR 2006/7 explain how the margin scheme applies to supplies of real property that the supplier is taken (for the purposes of subsection 75-10(3)) to have held or acquired a sufficient interest in before 1 July 2000. | Can you use the margin scheme when you supply a tenancy in common interest in real property?: 40. Subsection 75-5(1) describes the types of real property that can be supplied under the margin scheme, as follows: 41. Tenancy in common is defined in Butterworth's Australian Legal Dictionary , 1997, as: 42. In Nullagine Investments Pty Ltd v. Western Australian Club Inc (1993) 177 CLR 635 at 644 Brennan J described an interest held by a tenant in common as: 43. It is evident that when tenants in common acquire freehold land, each tenant has a freehold interest in the land. This will also be the case, if the tenants in common each have a freehold interest in a stratum unit. The sale of the freehold interest in either of these circumstances falls within paragraph 75-5(1)(a). 44. Similarly, if tenants in common have a leasehold interest in land or a stratum unit, the sale or grant of the leasehold interest in these circumstances falls within paragraph 75-5(1)(c). | How is the margin for the supply calculated under subsection 75-10(2)?: 45. Under subsection 75-10(2), the margin for the supply is the amount by which the consideration for the supply exceeds the consideration for the acquisition of the real property. 46. If the consideration for the acquisition is equal to or greater than the consideration for the supply, then the margin for the supply is zero. | Consideration for the supply and settlement adjustments: 47. The consideration for the supply and the consideration for the acquisition may be either monetary or non-monetary or both. The consideration for the supply or acquisition should take into account adjustments on settlement that are commonly made for rates, land tax and other outgoings. Goods and Services Tax Determination GSTD 2006/3 [20] contains a detailed discussion on this topic. | Consideration for the acquisition: 48. The consideration for the acquisition of the real property is the original purchase price after taking into account settlement adjustments. In the case of subdivided land or a stratum unit, the effect of section 75-15 is that the consideration for the acquisition is the corresponding proportion of the consideration for the real property that you acquired. If land that is part of the original broadacres is used for public purposes including roads, parklands or utilities ('lost land'), the acquisition consideration of the entire broadacres is apportioned to the total number of subdivided lots, so that the sum of the apportioned amounts equals the acquisition consideration for the broadacres (including the 'lost land'). 49. The consideration for the acquisition does not include costs that the supplier had incurred that were associated with their purchase of the real property, such as their legal expenses and stamp duty. It also does not include costs incurred in developing the real property, prior to or after its acquisition. | Alternative view: 50. The interest in real property that you acquire may differ from the interest that you supply. The most common examples of this are where you subdivide land or construct stratum units. 51. In these circumstances, the title for the interest that you supply is not created until the subdivided land or stratum unit is registered with the relevant authority. Because of this, one view of the meaning of consideration for the acquisition is that any expenditure incurred in subdividing the land or constructing the stratum unit forms part of the consideration for the acquisition. The rationale for this is that the acquisition of the interest only occurs when the interest that you supply is created. 52. The Commissioner does not accept this view as section 75-15 addresses circumstances where the interest that is supplied differs from the interest that was acquired. The effect of section 75-15 is that for subdivided land or stratum title units, the consideration for the acquisition is the corresponding proportion of the consideration for the land or premises that you acquired. 53. The Full Federal Court decision in Sterling Guardian Pty Limited v. Commissioner of Taxation [2006] FCAFC 12 confirms that costs incurred in developing real property do not form part of the consideration for the acquisition of the real property. | The effect of section 75-14 on supplies made on or after 17 March 2005: 54. The treatment of excluding costs incurred in developing real property from the calculation of the margin for the supply is confirmed by section 75-14. Section 75-14 is effective from 17 March 2005. 55. Section 75-14 makes it clear that in working out the consideration for the acquisition the following are disregarded: including acquisitions or work connected with bringing the real property into existence. | Example 3: section 75-14: 56. Bob is a builder. He purchases a block of vacant land for $180,000 and then constructs a house on the land. The cost of constructing the house is $100,000. Bob sells the house and land package for $400,000 . 57. The margin for the supply is $220,000 ($400,000 - $180,000). The cost of constructing the house is not part of the consideration for the acquisition of the land. Instead, Bob is entitled to input tax credits for any construction acquisitions (for example, building materials and subcontractors' services) that are creditable acquisitions . | Apportionment methods: 58. To ascertain the proportion of the purchase price that relates to the subdivided allotment or stratum unit, you may use any fair and reasonable method of apportionment. The method of apportionment used must result in the sum of the proportionate amount of the purchase price that relates to each subdivided allotment or stratum unit equalling in total, the actual consideration for the acquisition. You cannot change the method of apportionment after sales of allotments or stratum units have been made unless the changed method is applied to calculate the margin for all the sales. 59. Examples of some methods that you may use are as follows: 60. The methods above may be used provided they give a fair and reasonable result. Use of 'lots or sites' as an apportionment method would not give a fair and reasonable result if the size or value of the lots or sites varied significantly. 61. In some circumstances, you may use a combination of these or other fair and reasonable methods of apportionment. An example of where this may provide a fair and reasonable apportionment is a multi-staged development. | Example 4: area basis: 62. Josine is a property developer who is registered for GST purposes. She acquired a block of land of 2,000 square metres for $240,000. The block was of approximately uniform value per square metre. She subdivided the block into two allotments of 600 square metres each and one allotment of 800 square metres. As the lots are approximately of uniform value per square metre, Josine can use an area basis to ascertain the consideration for the acquisition of the subdivided allotments as it will provide a fair and reasonable result. Using this method, the consideration for the acquisition for each of the 600 square metre allotments is $72,000 (600/2,000 ? $240,000), whilst the consideration for the acquisition of the 800 square metre allotment is $96,000 (800/2,000 ? $240,000). 63. If Josine sells the 800 square metre allotment for $140,000, the margin for the supply is $44,000 ($140,000 - $96,000) and the GST payable on the supply is $4,000 . | Example 5: lots area: 64. Neville acquires a house and land for $500,000. Neville intends to demolish the house and construct four duplexes on the land. As each of the duplexes is of similar value Neville can use the lots method to establish the consideration for the acquisition for each of the duplexes. Using this method, the consideration for the acquisition of each duplex is $125,000 (1/4 ? $ 500,000 ). | Example 6: anticipated sales price: 65. Adam is a builder who is registered for GST purposes. He acquires land for $400,000. He subdivides the land and builds a house on each allotment. As the quality of the land varies between allotments, the anticipated sales method will provide a fair and reasonable apportionment method to ascertain the consideration for the acquisition for each of the house and land packages . 66. The anticipated sales price for each of the house and land packages and the consideration for the acquisition of each of them is shown below . | (anticipated sales price / total anticipated sales prices) x $400,000: 67. Adam subsequently sells Lot 1 for $190,000. The margin for the supply of Lot 1 is $150,000 ($190,000 - $40,000). The GST payable on the supply is $13,636.36 (1/11 of $150,000 ). | Example 7: multi-staged developments: 68. Johanna purchases land for $1.5 million which she intends to subdivide in three stages. As the land is of approximately uniform value per square metre, Johanna initially apportions the $1.5 million on an area basis between the three stages, giving values of $500,000 for stage one, $600,000 for stage two and $400,000 for stage three. When stage one is developed, Johanna can apportion the $500,000 acquisition consideration attributed to stage one between the allotments on an anticipated sales price basis provided this method gives a fair and reasonable result . | The effect of section 75-11 on supplies made on or after 17 March 2005: 69. The margin for the supply is not calculated under subsection 75-10(2) if the circumstances in subsection 75-11 apply, as subsection 75-10(2) is subject to the operation of section 75-11. 70. Section 75-11 applies to supplies made on or after 17 March 2005, and applies if real property was acquired from: 71. If more than one of these circumstances apply, the margin is worked out as follows: | Subsection 75-11(1): 72. For GST groups, subsection 75-11(1) deals with working out the margin for the supply if: 73. If these circumstances apply, the margin for your supply to the non-GST group member is worked out under either paragraph 75-11(1)(c) or (d). | Paragraph 75-11(1)(c): 74. Paragraph 75-11(1)(c) applies in working out the GST on your supply to the non-GST group member, if the real property was acquired by an entity that was a GST group member (or subsequently became one) from an entity that was not: 75. Under paragraph 75-11(1)(c), the margin for the supply is the amount by which the consideration for the supply you make to the non-GST group member exceeds the consideration for the real property acquired by the GST group member. This means that supplies between group members are effectively disregarded. | Example 8: GST groups where earlier supply made on or after 1 July 2000: 76. 77. In the context of the diagram above, the margin for the supply by Cara Pty Ltd to Delta Pty Ltd is the difference between the consideration for the supply of $220,000 and the consideration for the acquisition by Beta Pty Ltd of $110,000. The supply by Beta Pty Ltd to Cara Pty Ltd is effectively disregarded when working out the margin for the supply by Cara Pty Ltd. 78. In the diagram, Beta Pty Ltd was a member of the GST group when it acquired the real property. However, subsection 75-11(1) would also apply if Beta Pty Ltd was not a member of the GST group when it acquired the real property, but became a member of the GST group by the time Cara Pty Ltd made its supply to Delta Pty Ltd. | Paragraph 75-11(1)(d): 79. Paragraph 75-11(1)(d) applies in working out the GST on your supply to the non-GST group member, if the real property was acquired by an entity that was a GST group member (or subsequently became one) from an associated entity [21] that was not a member of the GST group. 80. Under paragraph 75-11(1)(d), the margin is the amount by which the consideration for the supply you make to the non-GST group member exceeds the GST-inclusive market value of the real property at the time of the last earlier supply. The supplies between group members are disregarded. | Example 9: GST groups and associates where earlier supply made on or after 1 July 2000: 81. 82. In the context of the diagram above, the margin for the supply by Cara Pty Ltd to Delta Pty Ltd is the difference between the consideration for the supply of $330,000 and the GST-inclusive market value of the real property of $110,000 at the time of the acquisition by Beta Pty Ltd. The supply by Beta Pty Ltd to Cara Pty Ltd is effectively disregarded when working out the margin for the supply by Cara Pty Ltd. 83. In the diagram Beta Pty Ltd was a member of the GST group when it acquired the real property. However, subsection 75-11(1) would also apply if Beta Pty Ltd was not a member of the GST group when it acquired the real property, but later became a member of the GST group. | Subsection 75-11(2): 84. Subsection 75-11(2) deals with working out the margin if: 85. Under subsection 75-11(2), the margin for the supply you make is the amount by which the consideration for the supply to the non-GST group member exceeds an approved valuation of the real property as at 1 July 2000. Approved valuations are discussed at paragraphs 115 to 128. | Example 10: GST group where earlier supply made before 1 July 2000: 86. 87. In the context of the diagram above, the margin for the supply by Cara Pty Ltd to Delta Pty Ltd is $220,000, being the difference between the consideration for the supply of $330,000 and the approved valuation of the real property as at 1 July 2000 of $110,000. The supply between Beta Pty Ltd and Cara Pty Ltd in June 2003 is effectively disregarded. | Supply of real property made on or after 17 March 2005 where the real property was acquired from a joint venture operator: 88. Subsection 75-11(2A) applies if the joint venture operator acquired the real property on or after 1 July 2000, while subsection 75-11(2B) applies if the joint venture operator acquired the property before that date. | Subsection 75-11(2A): 89. Subsection 75-11(2A) applies if you make a supply of real property under the margin scheme and all of the following apply: 90. If the joint venture operator acquired the real property from an entity that was not an associate at the time of the acquisition then under paragraph 75-11(2A)(d) the margin for the supply of the real property is the amount by which the consideration for the supply you make exceeds the consideration for the supply to the joint venture operator. This means that supplies between the joint venture operator and the participants of the GST joint venture are effectively disregarded. 91. If the joint venture operator acquired the real property from an entity that was an associate at the time of the acquisition, then under paragraph 75-11(2A)(e), the margin for the supply of the real property is the amount by which the consideration for the supply you make exceeds the GST inclusive market value of the real property at the time that the joint venture operator acquired the real property. | Subsection 75-11(2B): 92. Subsection 75-11(2B) applies if you make a supply of real property under the margin scheme and all of the following apply: 93. If subsection 75-11(2B) applies, the margin for the supply you make is the amount by which the consideration for the supply exceeds an approved valuation of the real property as at 1 July 2000. Approved valuations are discussed at paragraphs 115 to 132. | Supply of real property made on or after 17 March 2005 where the acquisition was from a deceased estate: 94. Subsections 75-11(3) and (4) address how the margin scheme works when you supply real property that you acquired through inheriting it. Section 195-1 specifies the manner in which real property can be inherited. It states that you inherit a freehold interest in land, a stratum unit or a long-term lease if you become an owner of the interest, unit or lease: 95. Subsection 75-11(3) applies if the deceased acquired the real property before 1 July 2000, while subsection 75-11(4) applies if the deceased acquired the property on or after that date. Both these subsections only apply if subsections 75-11(1) to (2B) do not apply (GST groups and GST joint ventures). 96. If you supply real property that you inherit, and the deceased acquired it before 1 July 2000, then paragraph 75-11(3)(ca) allows you to choose to use the consideration for the deceased's acquisition of the real property when calculating the margin for the supply. However, paragraph 75-11(3)(ca) can only apply if: 97. Under paragraph 75-11(3)(ca) the margin for the supply is the amount by which consideration for the supply you make exceeds the consideration for the deceased's acquisition of the property. 98. If you do not know the consideration for the deceased's acquisition of the real property, or you do not choose to calculate the margin for the supply under paragraph 75-11(3)(ca), then the margin is calculated under paragraph 75-11(3)(d) or 75-11(3)(e). | Paragraph 75-11(3)(d): 99. Paragraph 75-11(3)(d) applies if the margin for the supply is not calculated under paragraph 75-11(3)(ca) and immediately before the time that you inherited the real property, the deceased was neither registered or required to be registered for GST purposes. If paragraph 75-11(3)(d) applies, the margin for the supply is the amount by which the consideration for the supply exceeds an approved valuation of the real property as at the latest of: 100. It is evident from paragraph 6.29 of the Revised Explanatory Memorandum to the Tax Laws Amendment (2005 Measures No. 2) Bill 2005 that Parliament's intention is that the day on which you inherited the real property will ordinarily be the date of death of the deceased. [23] However, in some circumstances such as where a will is varied by a court order or the beneficiaries of the estate enter into a deed of arrangement, then the day on which you inherited the real property will be the date the court order or deed of arrangement becomes effective. | Paragraph 75-11(3)(e): 101. Paragraph 75-11(3)(e) applies if the margin for the supply is not calculated under paragraph 75-11(3)(ca) and immediately before the time that you inherited the real property, the deceased was registered or required to be registered for GST purposes. Under paragraph 75-11(3)(e) the margin for the supply is the amount by which the consideration for the supply exceeds an approved valuation of the real property as at the latest of: | Subsection 75-11(4): 102. If you supply real property that you inherit, and the deceased acquired it on or after 1 July 2000, then paragraph 75-11(4)(d) allows you to choose to use the consideration for the deceased's acquisition of the real property when calculating the margin for the supply. However, paragraph 75-11(4)(d) can only apply if: 103. Under paragraph 75-11(4)(d) the margin for the supply is the amount by which consideration for the supply you make exceeds the consideration for the deceased's acquisition of the property. 104. If you do not know the consideration for the deceased's acquisition of the real property, or you do not choose to use that consideration, then the margin for the supply is calculated under paragraph 75-11(4)(e). 105. Under paragraph 75-11(4)(e) the margin for the supply is the amount by which the consideration for the supply exceeds an approved valuation of the real property as at the day that the deceased acquired it. | Supply of real property made on or after 17 March 2005 where the real property was acquired from an associate: 106. If you supply real property that you acquired on or after 1 July 2000 from an entity that was your associate [24] at the time of acquisition, the margin for the supply is worked out under paragraph 75-11(7)(d), [25] provided that the other subsections in section 75-11 do not apply. 107. Under paragraph 75-11(7)(d), the margin is the amount by which the consideration for the supply exceeds the GST inclusive market value of the real property at the time of its acquisition. | Example 11: real property acquired from an associate: 108. 109. The margin for the supply by Cara Pty Ltd to Delta Pty Ltd is the amount by which the consideration for the supply exceeds the GST inclusive market value of the real property at the time of acquisition from Beta Pty Ltd. That is: Margin = $500,000 - $100,000 = $400,000 | Subsection 75-11(8): 110. Subsection 75-11(8) extends the application of subsection 75-11(7) to acquisitions through supplies made by the following: in the same way as Subdivision 72-D affects the operation of Division 72. 111. The effect of this is that subsection 75-11(7) applies not only to associates as defined in section 195-1 but also treats the following as if they were associates: | Supply of real property to an associate where the supply is made on or after 17 March 2005: 112. If you supply real property to an associate, section 75-13 deems the consideration for the supply to be the GST-inclusive market value of the real property at the time of the supply. | Example 12: supplies to associates: 113. 114. The GST inclusive market value of the supply at the time of the supply is treated as the consideration for the supply from Cara Pty Ltd to Delta Pty Ltd. The margin for the supply by Cara Pty Ltd to Delta Pty Ltd is the amount by which the 'deemed' consideration for the supply exceeds the consideration for the acquisition by Cara Pty Ltd. That is: Margin = $700,000 - $490,000 = $210,000 | Approved valuations: 115. Section 75-35 applies to supplies made on or after 17 March 2005. It provides that the Commissioner may by legislative instrument 'determine in writing requirements for making valuations' for the purposes of the margin scheme. 116. A legislative instrument, MSV 2005/1, was registered on 16 March 2005. It applies to supplies made between 17 March 2005 and 30 November 2005 inclusive. Under this Determination, the valuation may be determined in writing by a professional valuer. Section 75-35 is effective from 17 March 2005. As this Determination was made prior to section 75-35 being enacted it was made under paragraph 75-10(3)(b) of the GST Act. 117. MSV 2005/3 was registered on 9 September 2005. It replaces MSV 2005/1, and applies to supplies of real property made on or after 1 December 2005 and before 1 March 2010. [26] 117A. MSV 2009/1 was registered on 20 October 2009. It replaces MSV 2005/3, and applies to supplies of real property made on or after 1 March 2010. [26A] (MSV 2009/1 also includes a new method 4 which applies to certain taxable supplies of real property acquired before 1 July 2000). [26B] 118. MSV 2005/3 and MSV 2009/1 set out the requirements as determined by the Commissioner for the following valuation methods: 118A. The requirements for each of these valuation methods are discussed at paragraphs 118B to 118F of this Ruling and paragraphs 73 to 82 of Goods and Services Tax Ruling GSTR 2006/7. [26C] | Method 1: valuation of the market value determined by a professional valuer: 118B. The requirements for method 1 are the same under both MSV 2005/3 and MSV 2009/1. 118C. For a valuation by a professional valuer to be an approved valuation for the purposes of Division 75, that valuation must be made in accordance with the requirements specified in the determination. The valuation is the market value of the interest, unit or lease that you held at the valuation date (or, if item 2A applies, the interest you acquired on or after the valuation date) as determined in writing by a professional valuer, provided it is not contrary to professional standards recognised in Australia. | Method 2: valuation based on the consideration provided by a purchaser (that is, received by the supplier) under the contract of sale: 118D. The requirements set out under Method 2 in MSV 2005/3 refer to a valuation based on the consideration provided by a purchaser in a contract for the sale and purchase of real property. MSV 2009/1 merely rewords the requirements in MSV 2005/3 in terms of the consideration received by the supplier so that it is immediately clear that this method is not the same as the consideration method under subsection 75-10(2). 118E. For a valuation based on the sale contract price to be an approved valuation for the purposes of Division 75, that valuation must be made by adopting as the valuation the consideration provided by a purchaser (that is, received by the supplier) under the contract of sale of the real property that has been executed or exchanged before the valuation date between parties dealing at arm's length. [27A] | Method 3: State Government or Territory Government department valuation: 118F. The requirements set out under method 3 in MSV 2005/3 refer to a valuation based on the most recent unimproved value, site value, or the capital value of the land for rating or land tax purposes before the valuation date. Method 3 in MSV 2009/1 omits the words 'unimproved value, site value, or the capital value'. This clarifies that a valuation made by or on behalf of a State or a Territory Government department for rating or land tax purposes is eligible as an approved valuation under Method 3 regardless of how the valuation may be described under the relevant State or Territory legislation. 119. The effect of subsection 75-35(2) is that a valuation made in accordance with the requirements in the determination is an approved valuation. | Valuation dates: 120. Valuations are required to work out the margin for supplies of real property in particular circumstances under section 75-11. The table below sets out the valuation dates for the purposes of section 75-11. | Time to make valuations: 121. To work out the margin for the supply of real property, you require a valuation as at the valuation date. The valuation process itself does not have to be undertaken on that date. 122. The valuation must be made by the due date for lodgment of the supplier's Activity Statement for the tax period to which the GST on the supply is attributable, unless paragraph 123, 123A or 124 of this Ruling applis. 123. If the Commissioner has allowed a further period under paragraph 75-5(1A)(b) for the supplier and the recipient to agree in writing that the margin scheme is to apply in working out the GST on the supply, under MSV 2005/3, the valuation must be made by the later of: 123A. Under MSV 2009/1, the time by which the valuation must be made has been extended by two weeks in recognition that this is a more realistic timeframe. The valuation must be made by the later of: 124. If the valuation is not undertaken within the time periods specified in paragraphs 122 to 123A of this Ruling, the Commissioner may for good reason allow an additional period to obtain a valuation. [33] 125. The time periods mentioned in paragraphs 122 to 124 for obtaining valuations do not affect the date by which the choice or agreement to apply the margin scheme must be made - see paragraphs 18 to 28. | What is the real property that you value?: 126. If any of the provisions of section 75-11 require you to obtain an approved valuation, the real property that you value is the real property that is in existence at the valuation date. This will not always be the real property that is supplied. 127. Often the real property that is supplied was not in existence at the valuation date. Examples of this are: 128. If the real property that is supplied was not in existence at the valuation date but is part of the real property that was in existence at that date, the valuation must be made as follows: | Example 13: valuing real property that is subdivided after the valuation date: 129. | Professional valuers: 130. A professional valuer [34] is: You may use an in-house employee who is a professional valuer. 130A. In MSV 2009/1, the definition of a professional valuer also includes: 130B. Although members of the Royal Institution of Chartered Surveyors or Australian Valuers Institute are not specifically referred to in the definition of 'professional valuer' in MSV 2005/3, they would have been covered by paragraphs (a) and (b) of the definition above. To make this clear, MSV 2009/1 specifically includes members of these bodies in the definition of 'professional valuer'. 131. A supplier may engage a professional valuer to undertake the valuation or accept a valuation made by a professional valuer commissioned by another party, for example, a purchaser. | Documentation that a professional valuer is required to provide: 132. For supplies of real property made on or after 1 December 2005, clause 10 of MSV 2005/3 and subclause 13(5) of MSV 2009/1 state that the valuation must include a signed certificate which specifies: | Can you apply the margin scheme when you make a supply of real property that has separately identifiable taxable and non-taxable (that is, GST-free or input taxed) parts?: 133. If a supply of real property is a mixed supply because it has separately identifiable taxable and non-taxable (that is, GST-free or input taxed) parts, then the margin scheme can apply to the taxable component. Examples of supplies that may be mixed supplies are a supply of a building that contains areas that are input taxed residential premises and taxable commercial premises or a supply of a building that includes new residential premises as well as an area supplied as a GST-free supply of a going concern. 134. In these circumstances, if the margin for the supply is calculated under subsection 75-10(2), the consideration for the supply and the consideration for the acquisition, are the amounts of the consideration that relate to the taxable component of the supply. 135. If the circumstances in section 75-11 apply, the margin is the amount by which the consideration for the supply exceeds an approved valuation or the GST-inclusive market value of the real property as the case may be. 136. You may use any fair and reasonable method of apportionment to ascertain the consideration for the supply and either that relates to the taxable component of the supply. | Approved valuation: 137. The table in paragraph 120 specifies when an approved valuation is required to work out the margin for the supply. 138. If an approved valuation is required to work out the margin for the taxable component of a supply, the valuation is to be obtained for the entire real property supplied. The valuation is then apportioned on any fair and reasonable basis to ascertain the part of the valuation that relates to the taxable component of the supply. | GST inclusive market value: 139. Paragraphs 75-11(1)(d), 75-11(2A)(e) and 75-11(7)(d) require the margin to be worked out by reference to the GST inclusive market value of the real property supplied. 140. Paragraph 75-11(1)(d) applies when a member of a GST group acquires real property on or after 1 July 2000 from an entity that is not a member of the GST group but is an associate of the GST group member. 141. Paragraph 75-11(2A)(e) applies if the joint venture operator acquired the real property from an entity that was an associate at the time of the acquisition. 142. Paragraph 75-11(7)(d) applies if you supply real property that you acquired on or after 1 July 2000 from an entity that was your associate at the time of acquisition. 143. If the GST inclusive market value is required to work out the margin for the taxable component of a supply, the GST-inclusive market value is to be obtained for the entire real property supplied. The GST inclusive market value is then apportioned on any fair and reasonable basis to ascertain the part that relates to the taxable component of the supply. | How do you calculate the GST inclusive sale price and the margin?: 144. For the purposes of Division 75 the GST inclusive sale price is the GST exclusive price plus the GST payable on the margin. The following example sets out how to calculate the GST inclusive price when initially only the GST exclusive price is known. | Example 14: where only the GST exclusive price is known: 145. The GST exclusive price is $96,364 and the consideration for the acquisition is $60,000. The GST inclusive price is calculated using the formula: GST inclusive price = ((E - C) / 10) + E Where: E is the GST exclusive price; and C is the supplier's consideration for the acquisition. GST inclusive price = ((96,364 - 60,000) / 10) + 96,364 = $100,000 The margin for the supply = $100,000 - $60,000 = $40,000. 146. If the margin for the supply is calculated using an approved valuation or the GST inclusive market value the same equation is used. However, C in the equation will be the approved valuation or the GST inclusive market value. | Subsection 75-22(1): 147. You may apply the margin scheme to the supply of real property even though you acquired part of the real property through a supply that was ineligible for the margin scheme. An example of this is where a supplier acquires two adjoining properties and one of the properties was acquired as a taxable supply without using the margin scheme, and the other property was acquired as: 148. If you apply the margin scheme to a later supply of real property acquired in this manner, you have an increasing adjustment under subsection 75-22(1). The increasing adjustment is an amount equal to the previously attributed input tax credit amount [36] for the acquisition of the real property that was acquired as a taxable supply without using the margin scheme. 149. Subsection 75-22(1) applies to supplies made on or after 17 March 2005 and may apply to: | Subdivision of broadacres: 150. If you acquire adjoining properties, one of which is acquired through a supply that is ineligible for the margin scheme, and you subdivide the properties, the margin scheme can be used for the supply of some of the subdivided lots. 151. The margin scheme: | Example 15: subdivision of broadacres: 152. This is diagrammatically represented below as: 153. In the context of the diagram, the real property that would have been ineligible for the margin scheme is shaded. 154. The margin scheme cannot apply to supplies of Lots 1 to 3 as they were acquired entirely through a supply that was ineligible for the margin scheme under subsection 75-5(2). The margin scheme can apply to Lots 7 to 9 because subsection 75-5(2) does not apply to make the supply of them ineligible. The margin scheme can also apply to the supply of Lots 4 to 6 as the entire interest in each of those lots was not acquired through a supply that was ineligible for the margin scheme. They are therefore not excluded by subsection 75-5(2). 155. If the margin scheme is applied to supplies of Lots 4 to 6, there are increasing adjustments under subsection 75-22(1). The increasing adjustment for each supply is a proportionate amount of the previously attributed input tax credit amount for the acquisition of the land. You may use any fair and reasonable basis of apportionment to work out the increasing adjustment. | Stratum unit: 156. 'Stratum unit' is defined in section 195-1 as having 'the meaning given by subsection 124-190(3) of the Income Tax Assessment Act 1997'. Subsection 124-190(3) defines a stratum unit as 'a lot or unit (however described in an Australian law or a foreign law relating to strata title or similar title) and any accompanying common property.' The Commissioner considers that the reference to 'similar title' in the definition of stratum unit includes other arrangements such as group title arrangements. 157. The definition of stratum unit in section 195-1 encompasses a legal arrangement where real property is divided into units or allotments and common property. The common property is usually held by a body corporate as agent for the land owners as tenants in common. 158. For the purpose of the discussion below, the term 'strata title' refers to a strata plan where the boundaries of unit are defined by reference to the structures (for example, walls floors and ceilings). For example, a single building divided into units. 159. In the discussion below the term 'group title' refers to arrangements where the real property is divided into allotments of land and common property. The boundaries are defined by reference to land rather than by reference to building structure. | Strata title: 160. If you acquire adjoining properties, one of which was acquired through a supply that is ineligible for the margin scheme, and you then construct stratum units on the properties, then ordinarily some part of the common property will be constructed on land that was acquired through a supply that: 161. In these circumstances, all of the stratum units have been partly derived from land that was acquired through a supply that was ineligible for the margin scheme. The supply of these units can be made under the margin scheme as subsection 75-5(2) does not apply. However, because the units were partly acquired through land that was ineligible for the margin scheme you have an increasing adjustment under subsection 75-22(1). The increasing adjustment is the proportionate amount of the input tax credits for the acquisition of the land referable to the supply of each stratum unit. | Example 16: stratum units: 162. 163. In the context of the diagram, the real property that was acquired through a supply that would have been ineligible for the margin scheme is shaded. 164. The common property in this example is made up of property that was acquired through a supply that was ineligible for the margin scheme as well as property that was eligible for the margin scheme. 165. Therefore, the margin scheme can apply to the supply of all the stratum units as the entire interest in each of the stratum units, including the common property, was not acquired through a supply that was ineligible for the margin scheme. They are therefore not excluded from the margin scheme by subsection 75-5(2). 166. If the margin scheme is applied to the supply of any of the stratum units, there is an increasing adjustment under subsection 75-22(1). The increasing adjustment is equal to the proportion of the input tax credit for the acquisition of the land that relates to the stratum unit supplied. To ascertain the extent of the increasing adjustment, you may use any reasonable basis of apportionment. | Group title: 167. The margin scheme can be used in group title arrangements where: | Subsection 75-22(2): 168. Subsection 75-22(2) is effective from 17 March 2005. Under subsection 75-22(2), you may use the margin scheme if you inherit real property and the deceased acquired part of that property through a supply that was ineligible for the margin scheme. An example of this is where: 169. If you apply the margin scheme in these circumstances you have an increasing adjustment to the extent of any input tax credits for the acquisition of the land. 170. The increasing adjustment is worked out in the same manner as indicated in paragraphs 155 and 161. | Supplies made on or after 17 March 2005 where the full consideration for the acquisition has not been paid: 171. If an entity makes supplies of real property but does not pay the full contract price for the acquisition of that property, section 75-12 applies. It provides that the margin for the supply is worked out as the amount by which the consideration for the supply exceeds the consideration paid for the acquisition (which may not be the consideration for the acquisition reflected in the contract). Section 75-12 is effective from 17 March 2005. | Example 17: full consideration not paid for supply: 172. Terry supplies real property to Adam. The consideration for the supply is $770,000. However, Adam only pays Terry $700,000. Adam then sells the property to Wendy for $1,100,000 and uses the margin scheme to calculate the GST payable on the supply. When Adam calculates the margin for the supply, the consideration for the acquisition is the amount he paid Terry ($700,000 ). 173. The margin for the supply is $400,000 ($1,100,000 - $700,000 ). | Decreasing adjustment for later payment of consideration: 174. If section 75-12 applies, and you later make a further payment of the acquisition consideration, you have a decreasing adjustment under section 75-27. Subsection 75-27(2), which is effective from 17 March 2005, provides that the amount of the decreasing adjustment is equal to 1/11th of the further amount of consideration paid. | Example 18: decreasing adjustment where consideration for a supply paid later: 175. Using the facts in the example shown above, if Adam subsequently pays Terry the remaining $70,000, he has a decreasing adjustment of $6,364 (1/11 ? $ 70,000 ). | Representatives of an incapacitated entity and the application of the margin scheme: 175A. A representative of an incapacitated entity [35A] in its capacity as a representative, may make a supply of the real property that was acquired by the incapacitated entity. In this circumstance, Division 58, which deals with representatives of incapacitated entities, treats the supply as made by the incapacitated entity. [35B] As a result, for the purpose of the margin scheme, the term "you'' in Division 75 is, when used to refer to the supplier of real property, taken to mean the incapacitated entity. 175B. If all the requirements for applying the margin scheme under Division 75 are satisfied when the incapacitated entity is taken to make the supply, the representative of the incapacitated entity may apply the margin scheme in respect of the supply. However, providing the requirements for a representative to be liable for GST under section 58-10 are met, it is the representative of the incapacitated entity (and not the incapacitated entity) that will be liable for the GST calculated under the margin scheme. | Entitlement to input tax credits: 176. If the GST payable on a supply of real property has been worked out under the margin scheme, the acquisition of the property by the recipient of the supply is not a creditable acquisition. This means that the recipient is not entitled to an input tax credit for the acquisition of the real property. [37] | Tax invoices: 177. A supplier is not required to issue a tax invoice for a taxable supply that is solely a supply of real property under the margin scheme. [38] | Record keeping requirements: 178. Section 382-5 of Schedule 1 to the TAA requires you to keep records that record and explain all transactions and other acts that you engage in that are relevant to the supply. You must retain these records for at least 5 years after the completion of the transactions or acts to which they relate. 179. As well as retaining accounting records documenting the transaction, you must also retain records showing how you have applied the margin scheme. Examples of these records include: 180. For supplies made on or after 17 March 2005, the following records must also be retained: 181. For supplies made on or after 29 June 2005 [39] to which subsection 75-5(1A) applies, the following records must also be retained:


What this Ruling is about | What this Ruling is about: 1. This Ruling is about how the margin scheme under Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) applies to a supply of a freehold interest, stratum unit, or long term-lease (referred to collectively as 'real property') you acquired on or after 1 July 2000. | 2. The Ruling does not apply to supplies of real property if you acquired the property on or after 1 July 2000, but the supply to you: | 3. Instead, the GST treatment of these supplies is addressed in Goods and Services Tax Ruling GSTR 2000/21 [1] and Goods and Services Tax Ruling GSTR 2006/7. [2] | 4. This Ruling discusses: | 5. Unless otherwise stated, all legislative references in this Ruling are to the GST Act. | Date of effect: 6. This Ruling, except for the legislative amendments made by the Tax Laws Amendment (2005 Measures No. 2) Act 2005 (2005 Amendment Act), the Tax Laws Amendment (2008 Measures No. 5) Act 2008 (2008 Amendment Act), and the requirements for making valuations contained in A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2005 / 1 (MSV 2005/1), A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2005 / 3 (MSV 2005/3) and A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2009 / 1 (MSV 2009/1), applies [to tax periods commencing] both before and after its date of issue. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). | 7. The legislative amendments contained in the 2005 Amendment Act apply to supplies made on or after 17 March 2005, except for the amendments to section 75-5. The amendments to section 75-5 apply to supplies on or after 29 June 2005 [3] that are: | 7A. The legislative amendments to Division 75 contained in the 2008 Amendment Act apply to supplies of real property where the real property was acquired on or after 9 December 2008 [5A] and was not acquired: | that specifies in writing the consideration, or a way of working out the consideration, for the supply. | 8. The valuation requirements in MSV 2005/1 apply to supplies made on or after 17 March 2005 and before 1 December 2005. MSV 2005/3 applies to supplies made on or after 1 December 2005 and before 1 March 2010. The requirements in MSV 2009/1 apply to supplies made on or after 1 March 2010, except those requirements for making valuations obtained by the Commissioner which apply to supplies made before, and on or after 1 March 2010. | 9. You can rely upon this Ruling on and from its date of issue for the purposes of section 357-60 of Schedule 1 to the Taxation Administration Act 1953 (TAA). | Margin scheme rulings: 11. There are three main public rulings dealing with the margin scheme. The following table summarises the major differences between the three rulings and may assist the reader in ascertaining which ruling is relevant to their circumstances. | Description of the contents | Applies where the real property was acquired or held before 1 July 2000 and was supplied before 1 December 2005. | Applies where the real property was acquired or held before 1 July 2000 and was supplied on or after 1 December 2005. | Applies where the real property that was supplied was acquired on or after 1 July 2000. | Background: 12. If you make a taxable supply of real property, the GST payable under the basic rule in section 9-70 is 1/11th of the price. [7] However, under subsection 75-5(1), if you make a taxable supply of real property by: | you may apply the margin scheme, if you and the recipient have agreed in writing that the margin scheme is to apply. [8] | 13. Under the margin scheme, the GST payable on the supply of real property is 1/11th of the margin for the supply. The margin for the supply is the amount by which the consideration for the supply exceeds the consideration [9] for the acquisition of the real property unless subsection 75-10(3) [10] or section 75-11 applies. Section 75-11 applies to supplies made on or after 17 March 2005. | 14. The GST payable under the margin scheme is usually lower than when the GST is worked out under the basic rule in section 9-70. Because of this, the margin scheme is used particularly if the recipient of the supply is not entitled to an input tax credit for the acquisition. The most common example is residential land or residential premises supplied to private owners for their own use or for investment purposes. However, the supplier can calculate GST under the margin scheme for supplies of all types of real property [11] including residential, commercial, retail and industrial property. | [t]he decision of the Full Court in Brady King Pty Ltd v Federal Commissioner of Taxation 2008 ATC 20-034; [2008] FCAFC 118; (2008) 168 FCR 558 in relation to the proper construction to be adopted concerning s 75-10 of the GST Act does not assist in the determination of the construction of s 38-325(2). | A type of co-ownership where two or more persons own distinct interests in the same piece of property. The tenants in common hold undivided shares, possessing the property in common and without exclusive possession of any part of it. | The shares of tenants in common are not carved out of, or engrafted onto, some notional tenure of an estate in fee simple in the land amenable to sale by, or on the application of, one tenant. Nor are tenants in common equitable owners of land capable of compelling a sale of the legal title by a bare legal owner. The rights of ownership are exhausted by the shares of two tenants in common, each seised of and holding on his own behalf an estate in fee simple in a one half share in a parcel of land. | Description of acquisition | When do the subsections apply ? | Subsections 75-11(1) and (2) | Subsections 75-11(1) and (2) apply regardless of whether the circumstances in subsections 75-11(3) and (7) apply. | Subsections 75-11(2A) and (2B) | Subsections 75-11(2A) and (2B) apply regardless of whether the other subsections apply. | Subsections 75-11(3) and (4) will only apply if subsections 75-11(1) to (2B) do not apply. | Subsection 75-11(7) will only apply if the other subsections in section 75-11 do not apply. | Supply of real property acquired from a fellow member of a GST group. [28] | Supply of real property acquired from a joint venture operator of a GST joint venture. [29] | Supply of real property you inherited and the deceased acquired it before 1 July 2000 and immediately before the time that you inherited the real property, the deceased was not registered or required to be registered for GST purposes. [30] | Supply of real property you inherited and the deceased acquired it before 1 July 2000 and immediately before the time that you inherited the real property, the deceased was registered or required to be registered for GST purposes. [31] | Supply of real property you inherited and the deceased acquired it on or after 1 July 2000. [32] | The day that the deceased acquired the real property. | Supplies made before 17 March 2005 to which the margin cannot be applied | Example 14: where only the GST inclusive price is known


Related rulings: TR 2006/10 GSTD 2004/2 GSTD 2006/3 GSTR 2000/21 GSTR 2004/2 GSTR 2006/6 GSTR 2006/7
Legislative references: ANTS(ABN)A 1999 41 ANTS(GST)A 1999 9-70 ANTS(GST)A 1999 9-75 ANTS(GST)A 1999 19-75 ANTS(GST)A 1999 38-325(2) ANTS(GST)A 1999 Subdiv 38-N ANTS(GST)A 1999 38-445(1A) ANTS(GST)A 1999 38-450 ANTS(GST)A 1999 48-40(2) ANTS(GST)A 1999 51-5 ANTS(GST)A 1999 51-30(2) ANTS(GST)A 1999 51-70(1)(a) ANTS(GST)A 1999 Div 58 ANTS(GST)A 1999 58-5 ANTS(GST)A 1999 58-10 ANTS(GST)A 1999 Div 72 ANTS(GST)A 1999 Subdiv 72-D ANTS(GST)A 1999 72-95 ANTS(GST)A 1999 72-100 ANTS(GST)A 1999 Div 75 ANTS(GST)A 1999 75-5 ANTS(GST)A 1999 75-5(1) ANTS(GST)A 1999 75-5(1)(a) ANTS(GST)A 1999 75-5(1)(c) ANTS(GST)A 1999 75-5(1A) ANTS(GST)A 1999 75-5(1A)(a) ANTS(GST)A 1999 75-5(1A)(b) ANTS(GST)A 1999 75-5(2) ANTS(GST)A 1999 75-5(3) ANTS(GST)A 1999 75-5(3)(c) ANTS(GST)A 1999 75-10(2) ANTS(GST)A 1999 75-10(3) ANTS(GST)A 1999 75-10(3)(b) ANTS(GST)A 1999 75-10(3A) ANTS(GST)A 1999 75-11 ANTS(GST)A 1999 75-11(1) ANTS(GST)A 1999 75-11(1)(c) ANTS(GST)A 1999 75-11(1)(d) ANTS(GST)A 1999 75-11(2) ANTS(GST)A 1999 75-11(2A) ANTS(GST)A 1999 75-11(2A)(d) ANTS(GST)A 1999 75-11(2A)(e) ANTS(GST)A 1999 75-11(2B) ANTS(GST)A 1999 75-11(3) ANTS(GST)A 1999 75-11(3)(ca) ANTS(GST)A 1999 75-11(3)(d) ANTS(GST)A 1999 75-11(3)(e) ANTS(GST)A 1999 75-11(4) ANTS(GST)A 1999 75-11(4)(d) ANTS(GST)A 1999 75-11(4)(e) ANTS(GST)A 1999 75-11(7) ANTS(GST)A 1999 75-11(7)(c) ANTS(GST)A 1999 75-11(7)(d) ANTS(GST)A 1999 75-11(8) ANTS(GST)A 1999 75-12 ANTS(GST)A 1999 75-13 ANTS(GST)A 1999 75-14 ANTS(GST)A 1999 75-15 ANTS(GST)A 1999 75-20 ANTS(GST)A 1999 75-20(1) ANTS(GST)A 1999 75-22(1) ANTS(GST)A 1999 75-22(2) ANTS(GST)A 1999 75-25(1)(a) ANTS(GST)A 1999 75-27 ANTS(GST)A 1999 75-27(2) ANTS(GST)A 1999 75-30 ANTS(GST)A 1999 75-30(1) ANTS(GST)A 1999 75-35 ANTS(GST)A 1999 75-35(2) ANTS(GST)A 1999 195-1 ITAA 1936 318 ITAA 1997 124-190(3) TAA 1953 Sch 1 Div 358 TAA 1953 110-50(2) TAA 1953 382-5 PSA 1999 Tax Laws Amendment (2005 Measures No. 2) Act 2005 Tax Laws Amendment (2005 Measures No. 2) Act 2005 Sch 6 Tax Laws Amendment (2008 Measures No. 5) Act 2008
Case references: Aurora Developments Pty Ltd v Commissioner of Taxation [2011] FCA 232 2011 ATC 20-250
Subject references: freehold interest long-term lease margin margin scheme real property stratum unit taxable supply valuation
Other references: A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination (No. 1) 2000 MSV 2001/1 A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination (No. 2) 2000 MSV 2001/2 A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2005/1 A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2005/2 A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2005/3 A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2009/1 Australian Legal Dictionary, 1997, Butterworths Law Administration Practice Statement PS LA 2005/15 Law Administration Practice Statement PS LA 2005/16 Law Administration Practice Statement PS LA 2005/2 (GA) Revised Explanatory Memorandum to the Tax Laws Amendment (2005 Measures No. 2) Bill 2005