Taxpayer Alert TA 2004/7: Use of the Grouping provisions and the Margin Scheme to avoid or reduce the Goods and Services Tax (GST) on the sale of new residential premises
Date of issue: 7 April 2004
Status: Current


Description: The Taxation Office view on this arrangement is set out in GST Ruling - GSTR 2005/4 . | This Taxpayer Alert describes an arrangement that uses the grouping provisions and the margin scheme in an attempt to avoid or reduce GST on the sale of new residential premises. Relying on a concession within the grouping provisions, substantially completed residential units/houses are sold within a group and not treated as a taxable supply. The acquiring group member completes the residential units/houses and sells them as a taxable supply to third parties, paying GST only on the margin between this sale price and the intra-group sale price. The effect of the intra-group sale is to avoid or reduce the margin for GST on the sale to the third party. | The alert applies to arrangements that exhibit some or all of the following features: 1. Two or more entities apply for approval as a GST group, or are currently members of a GST group. The entities may be new or existing. 2. A group member owns or acquires land and substantially completes, or arranges the substantial completion, of residential units/houses on the land. 3. The group member sells the substantially completed residential units/houses to another group member without levying GST. A supply between GST group members is treated as if it were not a taxable supply. 4. In some instances, the intra-group sale is claimed to be a GST-free supply of a going concern. 5. The acquiring group member completes, or arranges the completion of, the residential units/houses, and sells them to third parties, paying GST only on the margin between the relevant sale price and the intra-group sale price. 6. The GST group claims input tax credits on the costs of construction, and/or the acquisition of the land. | 1. Two or more entities apply for approval as a GST group, or are currently members of a GST group. The entities may be new or existing. 2. A group member owns or acquires land and substantially completes, or arranges the substantial completion, of residential units/houses on the land. 3. The group member sells the substantially completed residential units/houses to another group member without levying GST. A supply between GST group members is treated as if it were not a taxable supply. 4. In some instances, the intra-group sale is claimed to be a GST-free supply of a going concern. 5. The acquiring group member completes, or arranges the completion of, the residential units/houses, and sells them to third parties, paying GST only on the margin between the relevant sale price and the intra-group sale price. 6. The GST group claims input tax credits on the costs of construction, and/or the acquisition of the land. | The ATO considers that the arrangements outlined above give rise to taxation issues that include whether the: (a) acquiring group member can apply the margin scheme on the sale of the units/houses to third parties; (b) intra-group sale is the supply of a GST-free going concern; and (c) anti-avoidance provisions of Division 165 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act') apply, as the arrangements appear artificial and contrived in their design and execution. | (a) acquiring group member can apply the margin scheme on the sale of the units/houses to third parties; (b) intra-group sale is the supply of a GST-free going concern; and (c) anti-avoidance provisions of Division 165 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act') apply, as the arrangements appear artificial and contrived in their design and execution. | The Australian Taxation Office is examining these arrangements.





Related documents: GSTR 2005/4 | PS LA 2001/15 | GST Act Division 165 | GST Act Division 75 | GST Act Division 48 | GST Act Subdivision 38-J | TA 2004/2 | TA 2004/6

ILEC - Aggressive Tax Planning Team