Goods and Services Tax Ruling GSTR 2000/21
Date of effect: 1 December 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 Legal Database (http://law.ato.gov.au) to check its currency and to view the details of all changes.]

Class of entities or scheme: 11. You may choose to apply the margin scheme if you make a taxable supply of real property by: 12. Some situations where you, as the supplier of real property, can choose to apply the margin scheme are when you: In the situations described above the purchaser is not entitled to an input tax credit for the acquisition. | What is a taxable supply of real property?: 13. GST is payable on a taxable supply of real property. A supply is a taxable supply if: However a supply is not a taxable supply to the extent that it is input taxed or GST-free. [F2] 14. The following table illustrates how GST is applied to some supplies of real property by way of sale: 15. You can only apply the margin scheme if the supply is a taxable supply. If the supply is new residential premises then the first supply will be a taxable supply to which the margin scheme can apply but subsequent sales of the property as residential premises will be input taxed under Subdivision 40-C. Subsequent sales of vacant residential land will be a taxable supply if sold by a supplier who is registered or required to be registered for GST. | How is the margin calculated?: 16. Where the interest, unit, or long-term lease is acquired on or after 1 July 2000, and the circumstances in item 2A of the table in subsection 75-10(3) do not apply, then the margin is the difference between the consideration for the supply and the consideration for the acquisition of the interest, unit or long term lease. [F3] The consideration for the acquisition of the interest, unit or long-term lease is the original purchase price or in the case of subdivided land or a stratum unit the corresponding proportion of the original purchase price paid to acquire the relevant land. It does not include costs later incurred in developing the interest, unit or long term lease. [F4] 16A. Where the interest, unit, or long-term lease is held at 1 July 2000 the margin for the supply is the difference between the consideration for its supply and the consideration for its acquisition unless subsection 75-10(3) applies. Subsection 75-10(3) will only apply if you have obtained a valuation in accordance with the Commissioner's written determination, and: If subsection 75-10(3) applies, the margin is the difference between the consideration for the supply and the valuation of the interest, unit or long-term lease at the relevant date. 16B. For the purposes of subsection 75-10(3), the Commissioner considers that you have acquired or have held a sufficient interest in real property when you enter into, but have not completed a contract for the acquisition of the real property. [4A] 16C. In particular, if you had entered into a contract for the acquisition of freehold title to land, out of which stratum units were to be created, for the purposes of subsection 75-10(3) you are taken to have held or acquired a sufficient interest in the stratum units on entering into the contract. Similarly, if you had entered into a contract for the acquisition of freehold title to land for subdivision, for the purposes of subsection 75-10(3) you are taken to have held or acquired a sufficient interest in the subdivided lots at the time you entered into the contract. 16D. However, the Commissioner does not consider that a supply or acquisition of the real property itself [4B] occurs at the time of entry into a contract for the sale and purchase of that property. The Commissioner considers that the supply or acquisition of the property occurs on settlement of the contract. [4C] | What is the date of valuation of the property?: 17. If you choose to apply the margin scheme, and to calculate the margin for the supply under subsection 75-10(3), then you will be required to obtain a valuation. The table below sets out the particular circumstances and the date on which a valuation is required: Note : 18. The margin scheme ensures that, in these circumstances, GST is payable only on the increase in the value on or after the valuation date. 19. Where the Commonwealth, a State or Territory supplies land on which there are no improvements at 1 July 2000 the supply of the unimproved land will be GST-free. [F5] If the land has improvements as at 1 July 2000, then the Commonwealth, a State, or Territory can still choose the margin scheme to calculate the GST payable on the supply under Item 3 in the Schedule in paragraph 17 above. However if the land has no improvements as at 1 July 2000 but there are improvements subsequently made to the land prior to the supply of the real property, the Commonwealth, a State, or Territory can work out the GST on the difference between the consideration for the supply and the value of the land at the date of supply as if there were no improvements on the land at the date of supply. [F6] | When are the valuations to be made?: 20. If you choose to calculate the margin for the supply under subsection 75-10(3), then you require a valuation of the real property as at the valuation date. The valuation process itself does not have to be undertaken on that date. It is sufficient that the valuation is undertaken no later than the end of the tax period in which the GST payable on the supply is attributable. For supplies of real property under a standard land contract the date the GST payable becomes attributable will be the date of settlement. [F7] | How do you determine the value of completed premises as at the valuation date?: 21. The value that you can adopt for completed premises or land subdivisional projects is: | Method 1: Value determined by a professional valuer: 22. A professional valuer [F8] is: 23. You may use an in-house employee who is a professional valuer. 24. Valuations provided by a professional valuer must comply with the following criteria: | Documentation required: 25. The valuer should provide a signed certificate which specifies: | Method 2: Value is the consideration provided by a purchaser in a contract for the sale and purchase of real property: 26. You can adopt, as the value, the consideration provided by a purchaser in a contract for the sale and purchase of real property executed or exchanged prior to 1 July 2000 between parties dealing at arm's length [F9] . | Method 3: Value as determined by the State Government or Territory Government: 27. You can adopt as the value the most recent unimproved value, site value, or the capital value of the land as determined by a State Government or Territory Government department or undertaken by a professional valuer on behalf of a State Government or Territory Government department for rating or taxing purposes made prior to 1 July 2000. The value as at 1 July 2000 for the margin scheme purposes is the value shown in a notice of valuation or land tax notice of assessment or other similar document. This method will assist land developers who have large holdings of unimproved on hand at 1 July 2000. | How do you value partly completed premises as at the valuation date?: 28. Partly completed premises means in relation to: 29. The value that you can adopt for partly completed premises is: | Method 1: Value determined by a professional valuer: 30. Where the property to be valued consists of a land subdivision or land and buildings that are partly completed as at the valuation date, then the valuer should undertake the valuation having regard to: | Method 2: Value determined using the costs of completion method: 31. This method requires you to calculate the costs incurred prior to the valuation date as a percentage of the total costs of completion. 32. The valuation under Division 75 is this percentage applied to the consideration for the supply of the property. 33. The costs of completion method is an approximate method used to determine the value as at 1 July 2000. Accordingly you can only use this method if the sale of the freehold interest, stratum unit or long-term lease occurs prior to 1 July 2005. If the value is determined as a percentage of the sale price, it is considered that a sale occurring on or after this date will not reflect the value as at 1 July 2000 using this method. For sales occurring on or after 1 July 2005, the supplier will need a valuation by a professional valuer if the supplier chooses to calculate the GST payable using the margin scheme. | What types of costs are included using the costs of completion method?: 34. When calculating the total cost, you should include all of the costs you incur in completing the development or subdivision. These costs are not limited to the purchase of land and the direct construction costs. We also consider infrastructure costs (both internal and external) to be so closely associated with the development or subdivision, that they should be absorbed into the cost of the items of real property (absorption costing). In the case of stratum units, the costs of completion include the costs of developing the common property. 35. Residential subdivision may involve a developer buying broadacres, obtaining appropriate approvals, carrying out various construction works on the broadacres, subdividing the broadacres and selling the subdivided lots. Typically, subdivisional costs include internal and external infrastructure costs. 36. Internal infrastructure costs are those associated with developing the infrastructure land, i.e., the part of the unsubdivided land that does not ultimately form part of the subdivided lots (e.g., streets or specially dedicated areas). 37. External infrastructure costs may arise where a developer is required to undertake infrastructure works outside the subdivision area. Those works may include upgrading of roads, sewerage treatment works, water and sewerage mains, drainage schemes, etc. Alternatively, a developer may be required to make financial contributions towards such works. 38. Costs which you should not include are: 39. If you are in the business of developing and subdividing undeveloped land, the approach to determining costs is the same as for valuing land as trading stock at cost for income tax purposes. [F10] The same approach applies to the construction of stratum units or commercial premises.

Ruling: Who can use the margin scheme?: 11. You may choose to apply the margin scheme if you make a taxable supply of real property by: 12. Some situations where you, as the supplier of real property, can choose to apply the margin scheme are when you: In the situations described above the purchaser is not entitled to an input tax credit for the acquisition. | What is a taxable supply of real property?: 13. GST is payable on a taxable supply of real property. A supply is a taxable supply if: However a supply is not a taxable supply to the extent that it is input taxed or GST-free. [F2] 14. The following table illustrates how GST is applied to some supplies of real property by way of sale: 15. You can only apply the margin scheme if the supply is a taxable supply. If the supply is new residential premises then the first supply will be a taxable supply to which the margin scheme can apply but subsequent sales of the property as residential premises will be input taxed under Subdivision 40-C. Subsequent sales of vacant residential land will be a taxable supply if sold by a supplier who is registered or required to be registered for GST. | How is the margin calculated?: 16. Where the interest, unit, or long-term lease is acquired on or after 1 July 2000, and the circumstances in item 2A of the table in subsection 75-10(3) do not apply, then the margin is the difference between the consideration for the supply and the consideration for the acquisition of the interest, unit or long term lease. [F3] The consideration for the acquisition of the interest, unit or long-term lease is the original purchase price or in the case of subdivided land or a stratum unit the corresponding proportion of the original purchase price paid to acquire the relevant land. It does not include costs later incurred in developing the interest, unit or long term lease. [F4] 16A. Where the interest, unit, or long-term lease is held at 1 July 2000 the margin for the supply is the difference between the consideration for its supply and the consideration for its acquisition unless subsection 75-10(3) applies. Subsection 75-10(3) will only apply if you have obtained a valuation in accordance with the Commissioner's written determination, and: If subsection 75-10(3) applies, the margin is the difference between the consideration for the supply and the valuation of the interest, unit or long-term lease at the relevant date. 16B. For the purposes of subsection 75-10(3), the Commissioner considers that you have acquired or have held a sufficient interest in real property when you enter into, but have not completed a contract for the acquisition of the real property. [4A] 16C. In particular, if you had entered into a contract for the acquisition of freehold title to land, out of which stratum units were to be created, for the purposes of subsection 75-10(3) you are taken to have held or acquired a sufficient interest in the stratum units on entering into the contract. Similarly, if you had entered into a contract for the acquisition of freehold title to land for subdivision, for the purposes of subsection 75-10(3) you are taken to have held or acquired a sufficient interest in the subdivided lots at the time you entered into the contract. 16D. However, the Commissioner does not consider that a supply or acquisition of the real property itself [4B] occurs at the time of entry into a contract for the sale and purchase of that property. The Commissioner considers that the supply or acquisition of the property occurs on settlement of the contract. [4C] | What is the date of valuation of the property?: 17. If you choose to apply the margin scheme, and to calculate the margin for the supply under subsection 75-10(3), then you will be required to obtain a valuation. The table below sets out the particular circumstances and the date on which a valuation is required: Note : 18. The margin scheme ensures that, in these circumstances, GST is payable only on the increase in the value on or after the valuation date. 19. Where the Commonwealth, a State or Territory supplies land on which there are no improvements at 1 July 2000 the supply of the unimproved land will be GST-free. [F5] If the land has improvements as at 1 July 2000, then the Commonwealth, a State, or Territory can still choose the margin scheme to calculate the GST payable on the supply under Item 3 in the Schedule in paragraph 17 above. However if the land has no improvements as at 1 July 2000 but there are improvements subsequently made to the land prior to the supply of the real property, the Commonwealth, a State, or Territory can work out the GST on the difference between the consideration for the supply and the value of the land at the date of supply as if there were no improvements on the land at the date of supply. [F6] | When are the valuations to be made?: 20. If you choose to calculate the margin for the supply under subsection 75-10(3), then you require a valuation of the real property as at the valuation date. The valuation process itself does not have to be undertaken on that date. It is sufficient that the valuation is undertaken no later than the end of the tax period in which the GST payable on the supply is attributable. For supplies of real property under a standard land contract the date the GST payable becomes attributable will be the date of settlement. [F7] | How do you determine the value of completed premises as at the valuation date?: 21. The value that you can adopt for completed premises or land subdivisional projects is: | Method 1: Value determined by a professional valuer: 22. A professional valuer [F8] is: 23. You may use an in-house employee who is a professional valuer. 24. Valuations provided by a professional valuer must comply with the following criteria: | Documentation required: 25. The valuer should provide a signed certificate which specifies: | Method 2: Value is the consideration provided by a purchaser in a contract for the sale and purchase of real property: 26. You can adopt, as the value, the consideration provided by a purchaser in a contract for the sale and purchase of real property executed or exchanged prior to 1 July 2000 between parties dealing at arm's length [F9] . | Method 3: Value as determined by the State Government or Territory Government: 27. You can adopt as the value the most recent unimproved value, site value, or the capital value of the land as determined by a State Government or Territory Government department or undertaken by a professional valuer on behalf of a State Government or Territory Government department for rating or taxing purposes made prior to 1 July 2000. The value as at 1 July 2000 for the margin scheme purposes is the value shown in a notice of valuation or land tax notice of assessment or other similar document. This method will assist land developers who have large holdings of unimproved on hand at 1 July 2000. | How do you value partly completed premises as at the valuation date?: 28. Partly completed premises means in relation to: 29. The value that you can adopt for partly completed premises is: | Method 1: Value determined by a professional valuer: 30. Where the property to be valued consists of a land subdivision or land and buildings that are partly completed as at the valuation date, then the valuer should undertake the valuation having regard to: | Method 2: Value determined using the costs of completion method: 31. This method requires you to calculate the costs incurred prior to the valuation date as a percentage of the total costs of completion. 32. The valuation under Division 75 is this percentage applied to the consideration for the supply of the property. 33. The costs of completion method is an approximate method used to determine the value as at 1 July 2000. Accordingly you can only use this method if the sale of the freehold interest, stratum unit or long-term lease occurs prior to 1 July 2005. If the value is determined as a percentage of the sale price, it is considered that a sale occurring on or after this date will not reflect the value as at 1 July 2000 using this method. For sales occurring on or after 1 July 2005, the supplier will need a valuation by a professional valuer if the supplier chooses to calculate the GST payable using the margin scheme. | What types of costs are included using the costs of completion method?: 34. When calculating the total cost, you should include all of the costs you incur in completing the development or subdivision. These costs are not limited to the purchase of land and the direct construction costs. We also consider infrastructure costs (both internal and external) to be so closely associated with the development or subdivision, that they should be absorbed into the cost of the items of real property (absorption costing). In the case of stratum units, the costs of completion include the costs of developing the common property. 35. Residential subdivision may involve a developer buying broadacres, obtaining appropriate approvals, carrying out various construction works on the broadacres, subdividing the broadacres and selling the subdivided lots. Typically, subdivisional costs include internal and external infrastructure costs. 36. Internal infrastructure costs are those associated with developing the infrastructure land, i.e., the part of the unsubdivided land that does not ultimately form part of the subdivided lots (e.g., streets or specially dedicated areas). 37. External infrastructure costs may arise where a developer is required to undertake infrastructure works outside the subdivision area. Those works may include upgrading of roads, sewerage treatment works, water and sewerage mains, drainage schemes, etc. Alternatively, a developer may be required to make financial contributions towards such works. 38. Costs which you should not include are: 39. If you are in the business of developing and subdividing undeveloped land, the approach to determining costs is the same as for valuing land as trading stock at cost for income tax purposes. [F10] The same approach applies to the construction of stratum units or commercial premises. | Example 1: Residential subdivision: 40. A land developer who, on 1 July 2000 is registered for GST, acquired the freehold interest in four hectares of undeveloped land on 13 September 1986 for development, subdivision and sale. The developer subdivides this land into a residential estate of thirty allotments. The development includes the provision of services and facilities. 41. At 30 June 2000, the costs incurred are: 42. The total actual costs of completing the development and getting the allotments ready for sale is $2,500,000. The percentage of completion is 1,500,000 / 2,500,000, or 60%. 43. The allotments are of a uniform area, but are sold for varying sale prices, reflecting their positions on the estate. The GST inclusive sale prices are: 44. The valuations of the allotments as at 1 July 2000 are: 45. The GST payable under the margin scheme on each of the 15 allotments sold for $100,000 is calculated as follows: 46. You work out the margin and the GST payable on the other allotments in the same way. | Residential subdivision multistage development: 47. In a multistage development the margin scheme should be used for each stage in the development as a separate development. Costs which can be specifically identified with a particular stage of a development should be allocated directly to that stage. However some of the development costs may be directly related to more than one stage of the development. In this situation, the costs should be allocated between the stages of development using one of the following methods: 48. Development costs should only be allocated to development stages that are reasonably certain to proceed. 49. Some of the types of expenditure which would be allocated to more than one stage of development are: 50. Where development costs that are directly related to more than one stage of the development arise after one or more of the stages are completed, only significant costs should be allocated to the completed development stages. Minor costs incurred after that stage of development has been completed can be ignored for purposes of calculating the total cost of completion. | Example 2: Residential subdivision multistage development: 51. Gina is a land developer who is registered on 1 July 2000 for GST. On 3 November 1998 she acquires a freehold interest in 70 hectares of land, which she plans to subdivide into residential allotments in 3 stages. The first stage will be released in October 2000, stage 2 will be released in June 2001 and the remaining stage will be released in June 2002. Work on stages 2 and 3 have not commenced. Gina decides to use the costs of completion method to determine a value for the land as at 1 July 2000. 52. As part of the conditions for obtaining development approval for the three stages, Gina must set aside a reserve of 10 hectares to be dedicated to the local council for parkland, and upgrade an access road to the development. At 1 July 2000 Gina had partially completed the upgrade of the access road. 53. Gina decides to allocate the cost of land and the access road according to the number of lots in each development stage. Stage 1 of the development has 40 lots. It is proposed that stages 2 and 3 will consist of 30 lots each. Gina allocates these costs, as at the start of 1 July 2000 in the following manner: 54. At the start of 1 July 2000, Gina had also incurred expenditure specifically on developing stage 1. The total costs incurred on stage 1 as at the start of 1 July 2000 are: 55. At the time of completion, the total actual cost of completing stage 1 is $13,000,000. The percentage cost of completion is 7,500,000/13,000,000 or 57.7%. 56. The percentage cost of completion for stage 2 is $1,500,000 divided by the total actual cost of completion for stage 2. 57. After stage 1 of the project was completed, Gina incurred further expenditure on the parkland of $15,000. The amount of expenditure which would have been allocated to stage 1 is $6,000. As this amount is only minor in comparison the total expenditure on stage 1, it can be ignored. However, the remaining expenditure should be allocated to stages 2 and 3. | Example 3: House and land package: 58. Jack is a builder. He is registered on 1 July 2000 for GST. On this date he has a house under construction on land which he had previously purchased for $100,000. Jack sold the house and land on completion for a GST inclusive price of $340,000. At 30 June 2000, Jack had incurred the following costs for land, labour, materials, subcontractors and other costs: 59. The total cost of the house and land package at completion is $305,000. The percentage complete as at the start of 1 July 2000 is $183,000/305,000, or 60%. Therefore, the value of the house and land package as at 1 July 2000 is 60% of $340,000, or $204,000. 60. The GST payable under the margin scheme is calculated as follows: | Example 4: Strata title units of equal value: 61. Townhouses Pty Ltd constructs a block of 4 units. The company is registered for GST as at 1 July 2000. At 30 June 2000, it incurs costs of $900,000 made up as follows: 62. Total costs to completion are $1,200,000. Construction costs include labour, materials and subcontracting expenses which relate both to the units directly and to common property. 63. The percentage of completion as at 1 July 2000 is calculated as 900,000/1,200,000, or 75%. The developer sold each of the residential units for a GST inclusive price of $360,000. The value of each residential unit at1 July 2000 is apportioned accordingly as 75% of $360,000, or $270,000. 64. The GST payable under the margin scheme is calculated as follows: | Strata title units of differing value: 65. In some projects the selling price of the strata title units may vary over a wide range. This would usually happen when the project consists of a multi-storey development with penthouses selling at a substantial premium over units at lower levels. 66. The valuation of each unit is that percentage completed applied to the sale price for each of the units to be valued. | Example 5: Strata title units of differing value: 67. Azure Apartments Pty Ltd is a project developer registered on 1 July 2000 for GST. It constructs a residential tower which comprises five storeys, including a mix of one-bedroom apartments, two-bedroom apartments and penthouses: 68. At 30 June 2000, work has not commenced on the upper two levels of the building, but the developer has incurred the following costs: 69. On completion the developer finds that total project costs are $6,000,000. The percentage completion as at 1 July 2000 is calculated at 3,000,000/6,000,000, or 50%. The valuation of each apartment at 1 July 2000 is calculated as 50% of the GST inclusive sale price for the apartments. 70. The valuations for each apartment using this method are: | What is your entitlement to input tax credits?: 71. If you are a developer registered for the GST you can claim input tax credits for any creditable acquisitions you make in relation to improvements added to the property on or after 1 July 2000. For buildings or subdivisional developments partly completed as at 1 July 2000, the fact that you have claimed an input tax credit for the GST payable to complete the building or subdivisional development made on or after 1 July 2000 (eg., input tax credits on subcontractors or building materials) will not prevent you from choosing the margin scheme. However the purchaser of the real property under the margin scheme, will not be entitled to an input tax credit for the GST payable on the acquisition. [F11] | How do you calculate the GST inclusive sale price and the margin?: 72. For the purposes of Division 75 the GST inclusive sale price is the GST exclusive price plus the GST payable on the margin. 73. A builder or land developer should have regard to the ACCC Guidelines on Price Exploitation which were released in March 2000 when calculating the GST exclusive price. The following examples set out how to calculate the GST inclusive price where a valuation was determined using the costs of completion method or a valuation was obtained from a professional valuer. | Example 6: Where the GST exclusive price is known and a valuation using the costs of completion method was used: 74. The GST exclusive price is $96,364 and the percentage of completion as at 1 July 2000 was calculated using the costs of completion method as 60%. The GST payable on the margin is calculated as follows: I = ((11*E) / (10 + C)) GST inclusive price = (11 * GST exclusive price) / (10 + proportion of completion) = ((11 * 96,364) / (10 + 0.6)) = $100,000 Therefore the valuation as at 1 July 2000 using the costs of completion method = 100,000 * 60% or $60,000. The Margin = 100,000 - 60,000 or $40,000. The GST payable = 1/11 of $40,000. | Example 7: Where the GST exclusive price is known and a valuation as at 1 July 2000 was obtained: 75. The GST exclusive price is $96,364 and a valuation was obtained for the purposes of the margin scheme as at 1 July 2000 as $60,000. The GST inclusive price is calculated using the formula: I = ((11*E) - V)/10 GST inclusive price = ((11 x GST exclusive price) - Valuation amount) / 10 =(((11*96364)-60000)/10) = $100,000 The Margin = 100,000 - 60,000 or $40,000. The GST payable = 1/11 of $40,000. | Valuations made under section 19 of the GST Transition Act and Division 75 are not alternative methods for valuing real property: 76. Section 19 of the A New Tax System (Goods and Services Tax) Transition Act 1999 ('the Transition Act') and Division 75 are not alternative methods of valuing property in a particular situation. Section 19 applies to certain construction agreements which span 1 July 2000, and requires a valuation of work and materials permanently affixed to the construction site as at the start of 1 July 2000, or a later date as determined by the Commissioner. 77. This valuation, which does not include land, means the builder will be subject to GST only on the work and materials supplied and permanently affixed on the site on and after 1 July 2000. For more information on section 19 of the GST Transition Act, see GSTR 2000/14 titled 'Goods and services tax: transitional valuation of work in progress for head contractors in the building or civil engineering industries'. 78. Under Division 75, the need for a valuation as at 1 July 2000 or later date only arises where a freehold interest in land, a stratum unit, or a long term lease which is acquired or held before 1 July 2000 is granted or sold on or after that date. The valuation includes the land. | Example 8: Section 19 and Division 75 valuations: 79. Andrew owns land on which he is developing a block of units. On 15 March 2000, Andrew enters into an agreement with Bob, a builder, under which Bob carries out the construction work. Construction is in progress as at 1 July 2000. Bob may value, under section 19, the work and materials that have gone into the building as at 1 July 2000 and he is not liable for GST on that value. 80. If Andrew chooses to apply the margin scheme in working out the GST on the subsequent sale of the units, Andrew values as at 1 July 2000 the freehold interest in the land and the building being constructed. Andrew may engage a professional valuer to determine the valuation, or choose the cost of completion method. In either event the value of the land itself is included. 81. The following terms are defined for the purposes of this ruling. Terms with asterisks are defined in section 195-1 of the GST Act: | Input taxed: 82. Input taxed supply means a supply that is input taxed under Division 40. That Division sets out the supplies that are input taxed. They are financial supplies (section 40-5), residential rent (section 40-35), *residential premises (section 40-65), certain supplies of precious metals (section 40-100) and school tuckshops and canteens (section 40-130). If a supply is input taxed you do not charge GST on the supply, but you are not entitled to input tax credits for anything acquired or imported to make the supply | Long-term lease: 83. Long-term lease means a supply by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) for at least 50 years if: | New residential premises: 84. New residential premises means *residential premises that: 85. To avoid doubt, if the residential premises are *new residential premises because of paragraph (b) or (c) of this definition, the new residential premises include land of which the new residential premises are a part. | Real property: 86. Real property has its ordinary meaning for the purpose of the GST Act. Real property includes: | Residential premises: 87. Residential premises means land or a building that: and includes a *floating home. Standard land contract 88. A standard land contract means a standard contract for the sale of land as prepared by the various law societies or institutes and real estate institutes in Australia [F12] that provides for: | Stratum unit: 89. A stratum unit is 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. 90. Below is a detailed contents list for this draft Taxation Ruling: Commissioner of Taxation 28 June 2000 Under paragraph 75-10(3)(b) of the A New Tax System (Goods and Services Tax) Act 1999 and subsection 4(1) of the Acts Interpretation Act 1901 , I make the following determination: Citation 1. This determination may be cited as the A New Tax System ( Goods and Services Tax ) Margin Scheme Valuation Requirements Determination ( No . 1 ) 2000 . Commencement 2. This determination commences on the date the A New Tax System ( Goods and Services Tax ) Act 1999 commences. Circumstances in which the Determination will apply 3. This determination will apply where you acquired the freehold interest in land, stratum unit or long-term lease before 1 July 2000 and you: Requirements for making valuations for the purposes of Division 75 4. The valuation of a freehold interest, stratum unit or long-term lease mentioned in paragraph 75-10(3)(b) can be determined in accordance with any of these three methods: Method 1: Value as determined by a professional valuer 5. 6. Method 2: Value is the consideration provided by a purchaser in a contract for the sale and purchase of real property. 7. The value is the consideration provided by a purchaser in a contract for the sale and purchase of real property executed or exchanged prior to 1 July 2000 by parties dealing at arm's length. Method 3: Value as determined by the State Government or Territory Government. 8. The value is the most recent unimproved value, the site value or the capital value as determined by a State Government or Territory Government department or undertaken by a professional valuer on behalf of a State Government or Territory Government department for rating or taxing purposes made prior to 1 July 2000. Definitions 9. Dated this 23rd day of June 2000 Lawrie Hill Assistant Commissioner Rulings Goods and Services Tax Program Delegate of the Commissioner Under paragraph 75-10(3)(b) of the A New Tax System (Goods and Services Tax) Act 1999 and subsection 4(1) of the Acts Interpretation Act 1901 , I make the following determination: Citation 1. This determination may be cited as the A New Tax System ( Goods and Services Tax ) Margin Scheme Valuation Requirements Determination ( No . 2 ) 2000 . Commencement 2. This determination commences on the date the A New Tax System ( Goods and Services Tax ) Act 1999 commences. | Circumstances in which the Determination will apply: 3. This determination will apply where you acquired the freehold interest in land, stratum unit or long-term lease before 1 July 2000 and you: Requirements for making valuations for the purposes of Division 75 4. The valuation of partly completed freehold interest, stratum unit or long-term lease mentioned in paragraph 75-10(3)(b) can be determined in accordance with any one of the following methods: Method 1: Value as determined by a professional valuer 5. Method 2 - Value as determined using costs of completion method 6. Definitions 7. Signed this 23rd day of June 2000 Lawrie Hill Assistant Commissioner Rulings Goods and Services Tax Program Delegate of the Commissioner New South Wales - Contract for the sale of land - 1992 edition (copyright of the Law Society of New South Wales and the Real Estate Institute of New South Wales); Victoria - Contract of Sale of Real Estate (copyright of Law Institute of Victoria and the Real Estate Institute of Victoria); Queensland - Contract For Lots in a Community Titles Scheme and Contract For Houses and Land (copyright of Real Institute of Queensland); South Australia - REISA Contract (copyright of Real Estate Institute of South Australia); Western Australia - Joint Form of General Conditions for the Sale of Land 1998 revision (copyright of The Law Society of Western Australia and The Real Estate Institute of Western Australia); and Tasmania - Contract for Sale of Real Estate (not for use of sale on terms) (copyright of the Law Society of Tasmania). Previously issued in draft form as GSTR 1999/D9.

Examples: Example 1: Residential subdivision 40. A land developer who, on 1 July 2000 is registered for GST, acquired the freehold interest in four hectares of undeveloped land on 13 September 1986 for development, subdivision and sale. The developer subdivides this land into a residential estate of thirty allotments. The development includes the provision of services and facilities. 41. At 30 June 2000, the costs incurred are: 42. The total actual costs of completing the development and getting the allotments ready for sale is $2,500,000. The percentage of completion is 1,500,000 / 2,500,000, or 60%. 43. The allotments are of a uniform area, but are sold for varying sale prices, reflecting their positions on the estate. The GST inclusive sale prices are: 44. The valuations of the allotments as at 1 July 2000 are: 45. The GST payable under the margin scheme on each of the 15 allotments sold for $100,000 is calculated as follows: 46. You work out the margin and the GST payable on the other allotments in the same way. Residential subdivision multistage development 47. In a multistage development the margin scheme should be used for each stage in the development as a separate development. Costs which can be specifically identified with a particular stage of a development should be allocated directly to that stage. However some of the development costs may be directly related to more than one stage of the development. In this situation, the costs should be allocated between the stages of development using one of the following methods: 48. Development costs should only be allocated to development stages that are reasonably certain to proceed. 49. Some of the types of expenditure which would be allocated to more than one stage of development are: 50. Where development costs that are directly related to more than one stage of the development arise after one or more of the stages are completed, only significant costs should be allocated to the completed development stages. Minor costs incurred after that stage of development has been completed can be ignored for purposes of calculating the total cost of completion. | Example 2: Residential subdivision multistage development 51. Gina is a land developer who is registered on 1 July 2000 for GST. On 3 November 1998 she acquires a freehold interest in 70 hectares of land, which she plans to subdivide into residential allotments in 3 stages. The first stage will be released in October 2000, stage 2 will be released in June 2001 and the remaining stage will be released in June 2002. Work on stages 2 and 3 have not commenced. Gina decides to use the costs of completion method to determine a value for the land as at 1 July 2000. 52. As part of the conditions for obtaining development approval for the three stages, Gina must set aside a reserve of 10 hectares to be dedicated to the local council for parkland, and upgrade an access road to the development. At 1 July 2000 Gina had partially completed the upgrade of the access road. 53. Gina decides to allocate the cost of land and the access road according to the number of lots in each development stage. Stage 1 of the development has 40 lots. It is proposed that stages 2 and 3 will consist of 30 lots each. Gina allocates these costs, as at the start of 1 July 2000 in the following manner: 54. At the start of 1 July 2000, Gina had also incurred expenditure specifically on developing stage 1. The total costs incurred on stage 1 as at the start of 1 July 2000 are: 55. At the time of completion, the total actual cost of completing stage 1 is $13,000,000. The percentage cost of completion is 7,500,000/13,000,000 or 57.7%. 56. The percentage cost of completion for stage 2 is $1,500,000 divided by the total actual cost of completion for stage 2. 57. After stage 1 of the project was completed, Gina incurred further expenditure on the parkland of $15,000. The amount of expenditure which would have been allocated to stage 1 is $6,000. As this amount is only minor in comparison the total expenditure on stage 1, it can be ignored. However, the remaining expenditure should be allocated to stages 2 and 3. | Example 3: House and land package 58. Jack is a builder. He is registered on 1 July 2000 for GST. On this date he has a house under construction on land which he had previously purchased for $100,000. Jack sold the house and land on completion for a GST inclusive price of $340,000. At 30 June 2000, Jack had incurred the following costs for land, labour, materials, subcontractors and other costs: 59. The total cost of the house and land package at completion is $305,000. The percentage complete as at the start of 1 July 2000 is $183,000/305,000, or 60%. Therefore, the value of the house and land package as at 1 July 2000 is 60% of $340,000, or $204,000. 60. The GST payable under the margin scheme is calculated as follows: | Example 4: Strata title units of equal value 61. Townhouses Pty Ltd constructs a block of 4 units. The company is registered for GST as at 1 July 2000. At 30 June 2000, it incurs costs of $900,000 made up as follows: 62. Total costs to completion are $1,200,000. Construction costs include labour, materials and subcontracting expenses which relate both to the units directly and to common property. 63. The percentage of completion as at 1 July 2000 is calculated as 900,000/1,200,000, or 75%. The developer sold each of the residential units for a GST inclusive price of $360,000. The value of each residential unit at1 July 2000 is apportioned accordingly as 75% of $360,000, or $270,000. 64. The GST payable under the margin scheme is calculated as follows: Strata title units of differing value 65. In some projects the selling price of the strata title units may vary over a wide range. This would usually happen when the project consists of a multi-storey development with penthouses selling at a substantial premium over units at lower levels. 66. The valuation of each unit is that percentage completed applied to the sale price for each of the units to be valued. | Example 5: Strata title units of differing value 67. Azure Apartments Pty Ltd is a project developer registered on 1 July 2000 for GST. It constructs a residential tower which comprises five storeys, including a mix of one-bedroom apartments, two-bedroom apartments and penthouses: 68. At 30 June 2000, work has not commenced on the upper two levels of the building, but the developer has incurred the following costs: 69. On completion the developer finds that total project costs are $6,000,000. The percentage completion as at 1 July 2000 is calculated at 3,000,000/6,000,000, or 50%. The valuation of each apartment at 1 July 2000 is calculated as 50% of the GST inclusive sale price for the apartments. 70. The valuations for each apartment using this method are: What is your entitlement to input tax credits? 71. If you are a developer registered for the GST you can claim input tax credits for any creditable acquisitions you make in relation to improvements added to the property on or after 1 July 2000. For buildings or subdivisional developments partly completed as at 1 July 2000, the fact that you have claimed an input tax credit for the GST payable to complete the building or subdivisional development made on or after 1 July 2000 (eg., input tax credits on subcontractors or building materials) will not prevent you from choosing the margin scheme. However the purchaser of the real property under the margin scheme, will not be entitled to an input tax credit for the GST payable on the acquisition. [F11] How do you calculate the GST inclusive sale price and the margin? 72. For the purposes of Division 75 the GST inclusive sale price is the GST exclusive price plus the GST payable on the margin. 73. A builder or land developer should have regard to the ACCC Guidelines on Price Exploitation which were released in March 2000 when calculating the GST exclusive price. The following examples set out how to calculate the GST inclusive price where a valuation was determined using the costs of completion method or a valuation was obtained from a professional valuer. | Example 6: Where the GST exclusive price is known and a valuation using the costs of completion method was used. 74. The GST exclusive price is $96,364 and the percentage of completion as at 1 July 2000 was calculated using the costs of completion method as 60%. The GST payable on the margin is calculated as follows: I = ((11*E) / (10 + C)) GST inclusive price = (11 * GST exclusive price) / (10 + proportion of completion) = ((11 * 96,364) / (10 + 0.6)) = $100,000 Therefore the valuation as at 1 July 2000 using the costs of completion method = 100,000 * 60% or $60,000. The Margin = 100,000 - 60,000 or $40,000. The GST payable = 1/11 of $40,000. | Example 7: Where the GST exclusive price is known and a valuation as at 1 July 2000 was obtained. 75. The GST exclusive price is $96,364 and a valuation was obtained for the purposes of the margin scheme as at 1 July 2000 as $60,000. The GST inclusive price is calculated using the formula: I = ((11*E) - V)/10 GST inclusive price = ((11 x GST exclusive price) - Valuation amount) / 10 =(((11*96364)-60000)/10) = $100,000 The Margin = 100,000 - 60,000 or $40,000. The GST payable = 1/11 of $40,000. Valuations made under section 19 of the GST Transition Act and Division 75 are not alternative methods for valuing real property. 76. Section 19 of the A New Tax System (Goods and Services Tax) Transition Act 1999 ('the Transition Act') and Division 75 are not alternative methods of valuing property in a particular situation. Section 19 applies to certain construction agreements which span 1 July 2000, and requires a valuation of work and materials permanently affixed to the construction site as at the start of 1 July 2000, or a later date as determined by the Commissioner. 77. This valuation, which does not include land, means the builder will be subject to GST only on the work and materials supplied and permanently affixed on the site on and after 1 July 2000. For more information on section 19 of the GST Transition Act, see GSTR 2000/14 titled 'Goods and services tax: transitional valuation of work in progress for head contractors in the building or civil engineering industries'. 78. Under Division 75, the need for a valuation as at 1 July 2000 or later date only arises where a freehold interest in land, a stratum unit, or a long term lease which is acquired or held before 1 July 2000 is granted or sold on or after that date. The valuation includes the land. | Example 8: Section 19 and Division 75 valuations 79. Andrew owns land on which he is developing a block of units. On 15 March 2000, Andrew enters into an agreement with Bob, a builder, under which Bob carries out the construction work. Construction is in progress as at 1 July 2000. Bob may value, under section 19, the work and materials that have gone into the building as at 1 July 2000 and he is not liable for GST on that value. 80. If Andrew chooses to apply the margin scheme in working out the GST on the subsequent sale of the units, Andrew values as at 1 July 2000 the freehold interest in the land and the building being constructed. Andrew may engage a professional valuer to determine the valuation, or choose the cost of completion method. In either event the value of the land itself is included. 81. The following terms are defined for the purposes of this ruling. Terms with asterisks are defined in section 195-1 of the GST Act: Input taxed 82. Input taxed supply means a supply that is input taxed under Division 40. That Division sets out the supplies that are input taxed. They are financial supplies (section 40-5), residential rent (section 40-35), *residential premises (section 40-65), certain supplies of precious metals (section 40-100) and school tuckshops and canteens (section 40-130). If a supply is input taxed you do not charge GST on the supply, but you are not entitled to input tax credits for anything acquired or imported to make the supply Long-term lease 83. Long-term lease means a supply by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) for at least 50 years if: New residential premises 84. New residential premises means *residential premises that: 85. To avoid doubt, if the residential premises are *new residential premises because of paragraph (b) or (c) of this definition, the new residential premises include land of which the new residential premises are a part. Real property 86. Real property has its ordinary meaning for the purpose of the GST Act. Real property includes: Residential premises 87. Residential premises means land or a building that: and includes a *floating home. Standard land contract 88. A standard land contract means a standard contract for the sale of land as prepared by the various law societies or institutes and real estate institutes in Australia [F12] that provides for: Stratum unit 89. A stratum unit is 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. 90. Below is a detailed contents list for this draft Taxation Ruling: Commissioner of Taxation 28 June 2000 Under paragraph 75-10(3)(b) of the A New Tax System (Goods and Services Tax) Act 1999 and subsection 4(1) of the Acts Interpretation Act 1901 , I make the following determination: Citation 1. This determination may be cited as the A New Tax System ( Goods and Services Tax ) Margin Scheme Valuation Requirements Determination ( No . 1 ) 2000 . Commencement 2. This determination commences on the date the A New Tax System ( Goods and Services Tax ) Act 1999 commences. Circumstances in which the Determination will apply 3. This determination will apply where you acquired the freehold interest in land, stratum unit or long-term lease before 1 July 2000 and you: Requirements for making valuations for the purposes of Division 75 4. The valuation of a freehold interest, stratum unit or long-term lease mentioned in paragraph 75-10(3)(b) can be determined in accordance with any of these three methods: Method 1: Value as determined by a professional valuer 5. 6. Method 2: Value is the consideration provided by a purchaser in a contract for the sale and purchase of real property. 7. The value is the consideration provided by a purchaser in a contract for the sale and purchase of real property executed or exchanged prior to 1 July 2000 by parties dealing at arm's length. Method 3: Value as determined by the State Government or Territory Government. 8. The value is the most recent unimproved value, the site value or the capital value as determined by a State Government or Territory Government department or undertaken by a professional valuer on behalf of a State Government or Territory Government department for rating or taxing purposes made prior to 1 July 2000. Definitions 9. Dated this 23rd day of June 2000 Lawrie Hill Assistant Commissioner Rulings Goods and Services Tax Program Delegate of the Commissioner Under paragraph 75-10(3)(b) of the A New Tax System (Goods and Services Tax) Act 1999 and subsection 4(1) of the Acts Interpretation Act 1901 , I make the following determination: Citation 1. This determination may be cited as the A New Tax System ( Goods and Services Tax ) Margin Scheme Valuation Requirements Determination ( No . 2 ) 2000 . Commencement 2. This determination commences on the date the A New Tax System ( Goods and Services Tax ) Act 1999 commences. Circumstances in which the Determination will apply 3. This determination will apply where you acquired the freehold interest in land, stratum unit or long-term lease before 1 July 2000 and you: Requirements for making valuations for the purposes of Division 75 4. The valuation of partly completed freehold interest, stratum unit or long-term lease mentioned in paragraph 75-10(3)(b) can be determined in accordance with any one of the following methods: Method 1: Value as determined by a professional valuer 5. Method 2 - Value as determined using costs of completion method 6. Definitions 7. Signed this 23rd day of June 2000 Lawrie Hill Assistant Commissioner Rulings Goods and Services Tax Program Delegate of the Commissioner New South Wales - Contract for the sale of land - 1992 edition (copyright of the Law Society of New South Wales and the Real Estate Institute of New South Wales); Victoria - Contract of Sale of Real Estate (copyright of Law Institute of Victoria and the Real Estate Institute of Victoria); Queensland - Contract For Lots in a Community Titles Scheme and Contract For Houses and Land (copyright of Real Institute of Queensland); South Australia - REISA Contract (copyright of Real Estate Institute of South Australia); Western Australia - Joint Form of General Conditions for the Sale of Land 1998 revision (copyright of The Law Society of Western Australia and The Real Estate Institute of Western Australia); and Tasmania - Contract for Sale of Real Estate (not for use of sale on terms) (copyright of the Law Society of Tasmania). Previously issued in draft form as GSTR 1999/D9.



What this Ruling is about | What this Ruling is about: 1. This ruling explains the determinations that the Commissioner has made under paragraph 75-10(3)(b) of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act'). The determinations are about the requirements for making valuations of a freehold interest, stratum unit , or long-term lease held prior to 1 July 2000. | 1A. If real property is supplied on or after 17 March 2005 and before 1 December 2005, the reader should also have regard to: | 2. The ruling explains in particular: | A copy of the determinations are attached at Schedule 1 and 2. | 3. This ruling does not deal with the application of the margin scheme where the supplier acquired the freehold interest in land, the stratum unit, or the long-term lease on or after 1 July 2000. | 4. Certain terms used in this ruling are defined or explained in the definitions section of the ruling. These terms when first mentioned elsewhere in the body of the ruling, appear in bold type. | 5. Unless otherwise stated, all references in this ruling are to the GST Act. | Date of effect: 6. This Ruling 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). | 6A. This Ruling does not apply to supplies made on or after 1 December 2005. For supplies made on or after 1 December 2005, refer to Goods and Services Tax Ruling GSTR 2006/7 Goods and services tax : how the margin scheme applies to a supply of real property made on or after 1 December 2005 that was acquired or held before 1 July 2000 . | Background: 7. If you are registered or required to be registered and you make a taxable supply of real property , you must pay GST on that supply. | 8. If you make a taxable supply of real property, the GST payable is 1/11 of the price. [F1] This is referred to in this ruling as the basic rule. However, under section 75-5, if you make a taxable supply of real property by: | you may choose to apply the margin scheme in working out the amount of GST payable on the supply. | 9. Under the margin scheme, the GST payable on the supply of certain real property is 1/11 of the margin for the supply. The margin for the supply is the difference between the consideration for the supply and the consideration for the acquisition of the interest, unit or long-term lease unless subsection 75-10(3) applies. Subsection 75-10(3) applies if you have obtained a valuation of the property that is in accordance with the Commissioner's written determination, and: | 10. The GST payable under the margin scheme may be substantially lower than under the basic rule. The margin scheme can apply to all types of property including residential, commercial, retail and industrial and is particularly relevant if the recipient of your supply is not entitled to an input tax credit for the acquisition. | Sale of residential properties that are not new, for example existing residential properties. | Sale of newly constructed residential property in the course or furtherance of an enterprise (irrespective of whether bought by an owner occupier or as an investment property). | Sale of commercial or industrial property. | Sale of vacant land by an individual not in the course or furtherance of an enterprise. | Sale of vacant land by a developer in the course of the developer's enterprise | Sale of real property as part of a going concern, when the recipient is registered or required to be registered. However, both parties must agree in writing that the supply is a going concern. | Sale of farming land to a recipient who intends to carry on farming. | When valuations may be used | You acquired the freehold interest, stratum unit or long-term lease before 1 July 2000 and Items 2, 3, and 4 do not apply. | You acquired the freehold interest, stratum unit or long-term lease before 1 July 2000 but you were not registered or required to be registered until after 1 July 2000. | The earlier of the date of effect of your registration or the date of your application for registration | You were registered or required to be registered and held the freehold interest, stratum unit or long-term lease since before 1 July 2000, and there were improvements on the land or premises as at 1 July 2000. | The supplier is the Commonwealth, State, or Territory and has held the freehold interest, stratum unit or long-term lease since before 1 July 2000 and there were no improvements on the land or premises as at 1 July 2000. | The day on which the taxable supply takes place | Site administration expenses | GST inclusive sale price - value at 1 July 2000 | Costs at the start of 1 July 2000 | Cost of land to be subdivided | Cost of land for parkland | Costs of upgrading access road | Direct costs on stage 1 of the estate | Contribution for headworks | Local government application fees | Legal fees for acquisition | 10 one-bedroom apartments | GST inclusive sale price per unit | When are valuations to be made? | How do you determine value of the completed premises as at the valuation date? | How do you calculate GST inclusive sales price and the margin? | Example 6 : Where the GST exclusive price is known and a valuation using the cost of completion method was used


Related rulings: TR 2006/10 GSTR 2000/14 GSTR 2000/28 GSTR 2006/7
Legislative references: ANTS(GST)A99 75-5 ANTS(GST)A99 75-10(2) ANTS(GST)A99 75-10(3) ANTS(GST)A99 75-10(3)(a) ANTS(GST)A99 75-10(3)(b) ANTS(GSTT)A99 19 Tax Laws Amendment (2005 Measures No. 2) Act 2005 TAA 1953 Sch 1 Div 358
Case references: Brady King Pty Ltd v Commissioner of Taxation [2008] FCAFC 118 2008 ATC 20-034 (2008) 168 FCR 558
Subject references: freehold interest long-term lease margin margin scheme real property stratum unit taxable supply valuation