House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Treasurer, the Hon Wayne Swan Mp

Chapter 1

GST and the sale of real property - integrity measure

Outline of chapter

1.1 Schedule 1 to this Bill amends the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to maintain the integrity of the goods and services tax (GST) tax base by ensuring that the interaction between the margin scheme provisions (see paragraph 1.4) and the going concern, farmland and associates provisions does not allow property sales to be structured in a way that results in GST not applying to the value added to real property on or after 1 July 2000 by an entity registered or required to be registered for GST.

1.2 These amendments:

•

ensure that where the margin scheme is used after certain GST-free or non-taxable supplies, the value added by the registered entity which made that supply is included in determining the GST subsequently payable under the margin scheme;

•

ensure that eligibility to use the margin scheme cannot be reinstated by interposing a GST-free or non-taxable supply; and

•

confirm that the GST general anti-avoidance provisions can apply to contrived arrangements entered into to avoid GST.

Context of amendments

1.3 GST is intended to be payable on the value added, including capital appreciation, to real property on or after 1 July 2000 (the date that GST commenced) by an entity registered for GST.

1.4 For real property, special rules exist that allow taxpayers an alternative means of calculating GST. These rules are known as the margin scheme.

1.5 As a result, under the GST Act, registered businesses can calculate GST payable on supplies of new residential property or commercial property under the basic rules (GST is 1/11th of the GST-inclusive price) or, subject to certain conditions, under the margin scheme (GST is 1/11th of the margin).

1.6 The margin scheme was designed to ensure that GST is payable only on the incremental value added to land by each registered party in a series of transactions. The margin scheme is generally used for new residential property developments.

1.7 Under the margin scheme GST is generally payable only on the value added to property on or after 1 July 2000. It levies GST only on the margin by which the value of the property increases each time it is sold by a registered entity on or after 1 July 2000.

1.8 Ordinarily, the margin is calculated as the difference between the sale price of the property, and the consideration paid for its acquisition. However, where the property was acquired before 1 July 2000, an approved valuation as at 1 July 2000 may be used. This ensures that the property's value prior to the introduction of the GST is not taxed.

1.9 Purchasers of real property supplied under the margin scheme are not entitled to claim input tax credits for GST remitted by the supplier. This ensures that each registered supplier in a series of transactions remits the GST applicable to the value added by them. To ensure that the full amount of GST is payable, the margin scheme does not apply where the property has been acquired under the basic rules for the calculation of tax payable, as an input tax credit would generally have been claimed on the purchase of the property (and GST would effectively not have been collected).

1.10 However, an entity that would otherwise be prevented from applying the margin scheme, on the basis that it acquired the property as a taxable supply under the basic rules, can reinstate eligibility for the margin scheme by interposing certain GST-free or non-taxable supplies prior to selling the property under the margin scheme.

1.11 This arises generally where property has been acquired as a GST-free or non-taxable supply and the margin scheme is available to calculate the GST payable on a subsequent supply of the property. In these circumstances there is no requirement to take into account whether the sale before the GST-free or non-taxable supply would have been eligible for the margin scheme.

1.12 These amendments aim to ensure that an otherwise ineligible supply cannot become 're-eligible' for supply under the margin scheme as a result of interposing certain GST-free or non-taxable supplies.

1.13 The interaction of the margin scheme provisions (Division 75) of the GST Act with certain other provisions - such as the going concern (Subdivision 38-J) and farmland (Subdivision 38-O) provisions - has resulted in GST not being applied to the full margin of value added to real property within the GST system. Similarly, GST is not calculated on the full margin of value added when real property has been acquired from an associate for no consideration.

1.14 This occurs because, under the margin scheme provisions, GST is only paid on the value added by the supplier of a taxable supply of real property. However, real property may be acquired GST-free under the going concern or farmland provisions, or acquired from a registered associate without consideration. When it is later sold under the margin scheme, GST would not have been applied to the full value added while the property was in the GST system.

1.15 The GST-free treatment assigned to going concerns (under section 38-325) and farmland (under section 38-480) is not granted with a view to removing value added by the supplier from the tax base. Rather it is to relieve the recipient of the burden of obtaining additional funds to cover the GST included in the price of a going concern, when ordinarily they would be able to claim an input tax credit.

1.16 However, where such a GST-free supply includes real property that is later sold under the margin scheme, the effect is that the value added to the real property before the GST-free supply is excluded for GST purposes. This is contrary to the policy intent that GST be collected on the value added to real property by registered owners on or after 1 July 2000. This deficiency arises irrespective of whether an entity is motivated by a desire to avoid tax.

1.17 These amendments aim to ensure the appropriate amount of GST is collected on supplies of real property consistent with the policy intent of the GST system.

1.18 These amendments will also remove an unintended outcome that was created by the Tax Laws Amendment (2005 Measures No. 2) Act 2005 . A technical deficiency in this amendment allowed an entity to eliminate or substantially reduce the amount of GST payable on a sale of real property it intended to make to a third party, by first supplying the property to a registered associate for no consideration. This supply would not attract any GST. The associated entity would then supply the property to a third party under the margin scheme, paying GST on a margin that would be much less than the margin that the original entity would have faced.

1.19 The general anti-avoidance provisions in the GST law provide the Commissioner of Taxation (Commissioner) with broad powers to cancel GST benefits that arise from contrived schemes.

1.20 The GST general anti-avoidance provisions may only operate if the GST benefit obtained from a scheme is not attributable to the making of a choice, election, application or agreement that is expressly provided by the GST law. These amendments will ensure that a GST benefit is not attributable to the making of a choice, election, application or agreement if the scheme was entered into for the sole or dominant purpose of creating a circumstance or state of affairs necessary to enable the choice, election, application or agreement to be made.

1.21 This measure will apply prospectively so that arrangements already entered into will not be impacted.

Summary of new law

1.22 Schedule 1 ensures that a supply that is ineligible for the margin scheme continues to be ineligible for the margin scheme after it is supplied as part of a GST-free sale of a going concern, as GST-free farmland, or it is supplied to a registered associate for no consideration.

1.23 This is achieved by specifying that a supply is ineligible for the margin scheme if the previous supplier acquired the entire interest through a taxable supply on which the GST was worked out without applying the margin scheme. This limited eligibility applies to supplies that are supplies of things that the supplier acquired through a new supply to the supplier.

1.24 This Schedule also provides that where real property is acquired GST-free as part of a going concern, GST-free farmland, or from a registered associate for no consideration, the calculation of GST on the subsequent sale of that property under the margin scheme should also account for the value added by the previous owner. The new calculation rules apply to supplies that are supplies of things that the supplier acquired through a new supply to the supplier.

1.25 New supplies are supplies made on or after the commencement of this Bill and are not made under a written agreement entered into before commencement or pursuant to a right or option granted before commencement, where consideration or a way of working out the consideration is specified.

1.26 Finally, this Schedule amends the GST general anti-avoidance provisions to avoid any doubt that those provisions can apply to schemes that were entered into with the sole or dominant purpose of creating a circumstance or state of affairs that enable a choice, election application or agreement to be made that gives rise to a GST benefit.

1.27 This provision brings the GST general anti-avoidance provisions into line with similar provisions for income tax. These amendments apply to a choice, election, application or agreement made on or after the commencement of this Bill.

Comparison of key features of new law and current law

Detailed explanation of new law

1.28 GST cannot be minimised by interposing certain GST-free or non-taxable supplies prior to a sale under the margin scheme. It is necessary to look through certain GST-free sales or non-taxable supplies when determining how to apply the margin scheme.

Eligibility for the margin scheme

1.29 A supply is ineligible for the margin scheme if it was purchased under the basic rules (ie, not using the margin scheme). This is because the purchaser would already have been entitled to claim an input tax credit, and should not be entitled to further relief under the margin scheme. This principle should apply whether or not there has been an interposed GST-free sale or non-taxable supply (of the kind to which these amendments apply).

1.30 A supply of real property that would have been ineligible for the margin scheme, cannot become re-eligible for the margin scheme because it was acquired as part of a GST-free going concern or as GST-free farmland or from an associate for no consideration. [Schedule 1, item 2]

1.31 This reflects the same treatment that applies to real property that has been inherited from a deceased person (paragraph 75-5(3)(b) of the GST Act), supplied from a member of a GST group (paragraph 75-5(3)(c) of the GST Act) or from a joint venture partner (paragraph 75-5(3)(d) of the GST Act). However, one main difference between the new eligibility provisions and the current provisions is that the new provisions only require an entity to look back through one transaction to determine eligibility.

1.32 It is recognised that limiting the look through test to determine eligibility to the preceding acquisition may enable eligibility for the margin scheme to be reinstated in instances where a sale of property made under the basic rules is followed by two or more interposed GST-free sales of a going concern or farmland or two or more interposed sales from an associate for no consideration. However, limiting the requirement to look through one transaction seeks to achieve a balance between the risks to revenue and the complexity and compliance costs that would be involved in tracing back through a number of transactions between unrelated parties.

1.33 The general anti-avoidance provisions may be applied to contrived arrangements that seek to benefit from the opportunity to reinstate eligibility for the margin scheme by, for example, artificially interposing two or more GST-free sales before a supply under the margin scheme.

1.34 It is also recognised that an acquisition from an associate may not be by means of a supply, for example, some acquisitions by government entities may be made without a supply. New subsection 75-5(3A) specifies that the requirements in subparagraphs 75-5(g)(iii) and (iv) will not apply where the acquisition by an associate for no consideration is not by means of a supply. This means that new paragraph 75-5(3)(g) will also apply where property is acquired for no consideration from an associate regardless of whether the associate makes a supply. [Schedule 1, item 3]

Example 1.1 : Ineligibility for the margin scheme following supply of going concern

A is registered for GST, and held vacant land before 1 July 2000. A sells the property to B, a property developer who is also registered for GST. This sale is made under the basic rules. A and B do not use the margin scheme, because B wishes to be eligible to claim an input tax credit on the purchase.

B begins construction of a unit complex on the vacant land. Before completing construction, B sells the partly constructed unit development to C, along with the necessary arrangements for C to carry on its construction. B and C have agreed that this is a supply of a going concern. Therefore B does not remit GST, nor is C entitled to an input tax credit.

C finishes the development, and sells a unit to D, who is a private individual not registered for GST. This is a taxable supply of new residential premises. C cannot make the sale to D under the margin scheme, because B acquired the property under the basic rules, and would therefore also have been ineligible to apply the margin scheme.

This example can also be followed using this diagram:

If B had purchased the property under the margin scheme then the margin scheme could have been applied to C's sale to D.

Example 1.2 : Ineligibility for the margin scheme following supply to a registered associate for no consideration

Kit Holdings is registered for GST. It acquires land in Sandy Bay under the basic rules. Later, Kit Holdings transfers the land for no consideration to an associated company, Kit Homes. When Kit Homes sells the land, it will be ineligible to use the margin scheme.

Alternatively, if Kit Holdings had acquired the land under the margin scheme, then the GST payable on the sale by Kit Homes could have been calculated under the basic rules or under the margin scheme.

Eligibility and partial supplies

1.35 Under existing subsection 75-5(2), where real property is acquired partly through a supply that is ineligible for the margin scheme, and partly through a supply that is eligible for the margin scheme, the margin scheme can be used for the subsequent supply. However, in these circumstances, the existing section 75-22 requires an increasing adjustment, reflecting the input tax credit entitlement for that part of the acquisition that is ineligible for the margin scheme.

1.36 Subsection 75-22(1) does not apply in relation to the scenarios described in new paragraphs 75-5(3)(e) to (g) as the supplier in these circumstances is not entitled to an input tax credit for the acquisition. Instead, it is the previous supplier that had the input tax credit entitlement.

1.37 Similarly, subsection 75-22(1) does not apply where property is supplied GST-free as part of a going concern or GST-free farmland or as a non-taxable supply to a registered associate for no consideration, where the entity making the GST-free or non-taxable supply acquired part of the property through a supply that was ineligible for the margin scheme.

1.38 For an increasing adjustment to apply in these circumstances, new subsections 75-22(3) and (4) have been inserted. [Schedule 1, item 10]

1.39 New subsection 75-22(5) specifies the amount of the increasing adjustment. In recognition that there may be difficulties for the supplier in obtaining the information to determine the input tax credits to which the previous supplier was entitled, the provision allows an adjustment to be calculated using an approved valuation.

1.40 Where an entity chooses to use an approved valuation, the amount of the increasing adjustment is equal to 1/11th of an approved valuation of the part of the real property that either, was ineligible for the margin scheme, or would have been ineligible for the margin scheme at the time of the previous supplier's acquisition. Alternatively, the increasing adjustment will be 1/11th of the consideration provided by the previous supplier to acquire that part of the real property. [Schedule 1, item 10]

Calculating the margin for a supply of real property after certain GST-free or non-taxable supplies

1.41 Where property has been supplied GST-free as part of a going concern, as GST-free farmland, or as a non-taxable supply to a registered associate for no consideration, the entity making the GST-free or non-taxable supply does not have a GST liability for the value they have added to the property. Instead, the calculation of the margin on a subsequent sale of such properties under the margin scheme only takes into account the value added by the supplier under the margin scheme.

1.42 The approach is to look through the prior GST-free sale or non-taxable supply in order to calculate the margin for supplies of property under the margin scheme. The margin is based on the consideration paid by the previous entity for their acquisition, or on a valuation of the property when the previous entity acquired the property or first become registered on or after 1 July 2000. In this way, the overall GST liability cannot be reduced by resetting the margin by way of a GST-free supply or a non-taxable supply to a registered associate for no consideration. [Schedule 1, item 4]

1.43 As stated, a valuation of a property may be required in order to calculate the margin. In particular, where an entity acquired land before 1 July 2000 and was required to be registered for GST at the commencement of GST, a 1 July 2000 valuation applies for the purposes of determining the margin.

1.44 Where an entity acquired real property on or after 1 July 2000 and was registered at the time of acquisition, a valuation of the property at the time of acquisition or the consideration for the acquisition may be used for the purposes of determining the margin.

1.45 Where real property is acquired by an entity on or after 1 July 2000 and the entity was not registered or required to be registered for GST at the time of acquisition, the value of the property at the time that the entity is first registered or required to be registered applies for the purposes of determining the margin.

1.46 New subsection 75-11(6A) recognises that an acquisition from an associate may not be by means of a supply, for example some acquisitions by government entities may be made without a supply.

Example 1.3 : Calculation of the margin following a GST-free sale

A is registered for GST, and held land before 1 July 2000 valued at $110,000. A sells the land to B for $165,000. The margin scheme is applied to this sale. A's GST liability is based on A's value added.

B begins operating an enterprise of construction and sale of a unit complex, and later sells the construction site as part of a going concern to C. Because B and C agree to treat the supply as a GST-free going concern, B pays no GST on the sale price of $440,000 for the site.

By interposing a GST-free sale, the tax on B's value added becomes payable on C's sale. This potential tax liability was contemplated by the parties when they negotiated the GST-free sale price. At the time of the GST-free sale, C could ensure that the necessary documentation evidencing B's acquisition price of the real property was obtained.

C completes the construction and sells it to D for $495,000, applying the margin scheme. In calculating the margin for the sale, C subtracts B's acquisition price of $165,000 from C's final sale price of $495,000. This results in a margin of $330,000 for this supply. C pays $30,000 in GST to the Australian Taxation Office.

This is equivalent to the outcome that would have been obtained had B sold the property to C under the margin scheme. In this case B would have paid GST of $25,000, based on B's margin of $275,000 ($440,000 - $165,000). C would have paid $5,000 GST, based on C's margin of $55,000 ($495,000 - $440,000). The total GST collection from B and C would still have been $30,000.

This example can also be followed using this diagram:

Example 1.4 : Calculation of the margin following supply to a registered associate for no consideration

A is registered for GST, and held land before 1 July 2000 valued at $110,000. A begins construction of a unit complex on the land. The property is transferred to its associate B, for no consideration. A is not liable to pay any GST on the transfer because B is registered for GST and acquires the property solely for a creditable purpose. The market value of the property at the time of the transfer is $440,000.

B completes construction, and sells new residential premises to C for $495,000, under the margin scheme. The margin for this sale includes the value added by B of $55,000 ($495,000 - $440,000) as well as the value added by A on or after 1 July 2000 of $330,000

($440,000 - $110,000). The total margin is therefore $385,000 ($495,000 - $110,000), upon which $35,000 GST is payable.

This is equivalent to the outcome that would have been obtained had A sold the property to B under the margin scheme for its market value of $440,000. In this case A would have paid GST of $30,000, being 1/11th of A's value added of $330,000. B would then have paid only $5,000 GST based on B's value added of $55,000. The total GST collection would still have been $35,000.

This example can also be followed using this diagram:

Example 1.5 : GST-free farmland

Jack is a farmer who is registered for GST. Jack owned property near Bendigo valued at $440,000 on 1 July 2000. Jack farms sheep on this land until 2010, when he sells the land to Toby for $550,000, another farmer who is registered for GST. Because Toby intends that a farming business be carried on, on the land Jack's supply to Toby is GST-free.

Toby is later approached by a developer that offers to buy the land in order to build residential premises. If Toby sells the property under the margin scheme, the margin would be the difference between the sale price and the value of the property as at 1 July 2000. Toby would have to remit GST on this margin, but the purchaser would not be entitled to an input tax credit.

Example 1.6 : Land acquired on or after 1 July 2000 by an unregistered entity, that later becomes registered for GST

Land is acquired in 2002 by an unregistered entity. In 2010, the entity becomes registered for GST. In 2012, the property is supplied as GST-free farmland, then later sold under the margin scheme. The margin for the later sale is based on an approved valuation or the GST-inclusive market value of the property when the entity became registered in 2010, not the consideration paid for the property in 2002.

Supplies between associates for no consideration

1.47 Division 75 applies to the sale of a freehold interest in land, a stratum unit or granting or selling a long term lease. As a result, under the current law, Division 75 does not apply in relation to supplies between associates for no consideration.

1.48 To ensure that Division 75 can apply, new subsection 75-5(1B) specifies that a supply of real property to an entity who is your associate is taken to be a sale to your associate whether or not the supply is for consideration. [Schedule 1, item 1]

1.49 Existing section 75-13 applies in relation to working out the margin for a supply to an associate. A consequential amendment is made to section 75-13 to ensure that it applies where there is a supply between associates for no consideration. [Schedule 1, item 8]

Calculating the margin for the supply of real property acquired through several acquisitions

1.50 There may be circumstances where more than one of the following provisions applies to the calculation of the margin for the taxable supply of real property; section 75-10 and subsections 75-11(1) to (7). This may occur where there have been several acquisitions of real property which may later be combined or amalgamated.

1.51 New section 75-16 specifies that where real property has been acquired through two or more acquisitions (partial acquisitions) the calculation of the margin under a particular provision is determined only to the extent that the supply is connected to the partial acquisition. [Schedule 1, item 9]

Example 1.7 : The margin for supply of real property acquired through several acquisitions

Bob acquired an interest as a GST-free supply of farmland. Bob acquired a second interest from an unregistered vender. The two interests are merged as part of a development and sold under the margin scheme.

Section 75-16 provides that the calculation of the margin under subsection 75-11(5) should only apply to the extent that the interest was acquired pursuant to the GST-free supply of farmland.

GST general anti-avoidance provisions

1.52 The general anti-avoidance provisions in Division 165 of the GST Act apply to artificial or contrived schemes that are entered into or carried out for the sole or dominant purpose of getting a GST benefit. Through entering into or carrying out a scheme, an entity may create a circumstance or state of affairs that is necessary to make a choice, election, application or agreement allowed under the GST Act. In this case, the GST benefit is not attributable to the choice, election, application or agreement.

1.53 In particular, the provisions of this Schedule apply to tax the value added to real property by looking back through certain GST-free or non-taxable supplies. However, in order to minimize complexity and record-keeping requirements for taxpayers, the taxpayer is required only to look back through one GST-free sale or non-taxable supply. Taxpayers attempting to circumvent these provisions by contriving a string of GST-free sales may be subject to the application of the GST anti-avoidance provisions.

1.54 The reduction in the margin that arises because of the interposition of a GST-free or non-taxable supply is not attributable to, for instance, the agreement to apply the margin scheme or that a supply is a supply of a going concern, but rather to the overall arrangement, including the interposing of the intermediate supply, of which the choice or agreement is but one part.

1.55 Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936), subparagraph 177C(2)(a)(ii) provides:

'...the scheme was not entered into or carried out by any person for the purpose of creating any circumstance or state of affairs the existence of which is necessary to enable the declaration, agreement, election, selection, choice, notice or option to be made, given or exercised, as the case may be...'.

1.56 For the avoidance of doubt, new subsection 165-5(3) introduces into the GST Act a concept that is already found in subparagraph 177C(2)(a)(ii) of the ITAA 1936, so that if a GST benefit is attributable to the making of a choice, election, application or agreement, then consideration needs to be given to the purpose of creating any circumstance or state of affairs which enable such a choice, election, application or agreement. [Schedule 1, item 11]

1.57 This exception is not limited to schemes involving real property and the margin scheme and applies to other schemes to which the GST general anti-avoidance provisions may apply.

1.58 Division 165 is intended to apply to artificial or contrived schemes and not, for example, where parties merely take advantage of concessions, such as the margin scheme and grouping provisions in accordance with the objects of the provision.

Example 1.8 : When Division 165 will not apply

A vendor and purchaser initially instruct their solicitors to draft a contract of sale for a taxable supply. Prior to the contract being executed the parties instruct their solicitors to amend the contract to reflect their agreement that the supply is of a going concern.

In amending the contract, the parties have not entered into an artificial or contrived arrangement to obtain an unintended benefit contrary to the object of the GST Act. They have merely taken advantage of the concession for a supply of a going concern. There is no additional benefit involved. Thus Division 165 does not apply.

1.59 However, where entities take steps to create a circumstance where a statutory choice may be exercised, as part of an artificial or contrived scheme to defeat the object of the GST Act or particular provisions of the Act - such as schemes that seek to use multiple applications of the going concern concession to avoid GST on the value added by registered entities - the new provision may be relevant to the application of Division 165.

1.60 This new provision requires a conclusion to be drawn as to the purpose of creating the requisite circumstance or state of affairs consistent with the exception contained in Part IVA of the ITAA 1936. The purpose must be the sole or dominant purpose. This standard limits the potential application of the provision to those arrangements that are artificial or contrived in nature. [Schedule 1, item 11]

Example 1.9 : A string of going concern sales

A is registered for GST and acquires real property on 1 July 2008 for $660,000. The property is acquired under the margin scheme. A partly completes a residential development on the property. On 17 June 2009 the market value of the property is $3.3 million. If A were to sell this property under the margin scheme at its market value of $3.3 million, the GST payable would be $240,000, based on A's margin of $2.64 million.

Instead, A transfers the property to B, as part of a GST-free going concern for $3.3 million. If B were to sell the property under the margin scheme for the same amount, the GST payable would still be $240,000, as B is also required to account for the value added prior to A's supply as a GST-free going concern.

A has arranged with B to transfer the property back to them on 18 June 2009. The property is still valued at $3.3 million. However, A is later able to sell the property to C under the margin scheme for $3.4 million. Because A had acquired the property from B as part of a GST-free going concern, A calculates the margin based on the difference between the final sale price ($3.4 million) and B's acquisition cost ($3.3 million). However, A is not required to look back further, hence A's original margin of $2.64 million is not taxed.

This transaction is brought to the attention of the Commissioner, who seeks to apply the GST general anti-avoidance provisions. Although the agreement to make a GST-free supply of a going concern is expressly provided for by Subdivision 38-J of the GST Act, this does not mean that any GST benefit received by A was attributable to the agreement, because the agreement was but one step in the arrangement. Also, under the amendments, the exclusion of GST benefits attributable to agreements provided for under the Act does not apply as the creation of the circumstances or state of affairs was for the purpose of enabling the agreement to be made.

Application and transitional provisions

1.61 The amendments to Division 75 relating to eligibility to apply the margin scheme and dealing with the calculation of the margin for a sale under the margin scheme apply in relation to supplies that are supplies of things that the supplier acquired through a new supply to the supplier. New supplies are supplies made on or after the commencement of this Bill and are not made under a written agreement entered into before commencement or pursuant to a right or option granted before commencement, where consideration or a way of working out the consideration is specified.

1.62 If a supply is made under a written agreement prior to the commencement of this Schedule, the supply of real property under that written agreement is not affected. This means that where parties have already entered into a written agreement that specifically identifies the supply and identifies the consideration in money or a way of working out the consideration in money for the supply of real property, the law as it stood prior to these amendments continues to stand.

1.63 The new rules apply only to parties entering into written agreements on or after the commencement of this Bill. This ensures that when negotiating the terms of a supply of real property, the parties have the opportunity to negotiate the contract price based on any potential liability under these provisions, and have the opportunity to obtain evidence of consideration paid or relevant valuations.

1.64 The sale of a property that was acquired as part of a going concern, or from an associate, prior to the date of commencement will be subject to the existing rules. This is illustrated in Diagram 1.1.

Diagram 1.1 : Application of Schedule 1 to the calculation of the margin

If B had purchased the property from A under a written agreement entered into before commencement, that specified in writing the consideration or a way of working out the consideration, the existing rules would apply. If B had similarly purchased the property from A under a right or option granted, that specified in writing the consideration or a way of working out the consideration for the supply before commencement, the existing rules would apply.

1.65 The amendments to the GST anti-avoidance provisions apply to a choice, election, application or agreement made on or after the commencement of this Bill. [Schedule 1, item 13]

Consequential amendments

1.66 There are also amendments reorganising assorted headings, notes and other things that need to be removed or changed because of the introduction of the new provisions. [Schedule 1, items 5 to 7 and item 12]