Edited version of private advice

Authorisation Number: 1052058507692

Date of advice: 8 December 2022

Ruling

Subject:GST and margin scheme

Question 1

Are you entitled to apply the margin scheme on the sale of Vacant Land?

Answer 1

Yes, you can apply the margin scheme on the sale of the Vacant Land.

Question 2

Are you entitled to claim a GST credit for the purchase of the Vacant Land?

Answer 2

No, you are not entitled to claim a GST credit for the purchase of the Vacant Land if you apply the margin scheme.

This ruling applies for the following periods:

1 July 20XX to 30 June 20XX

1 July 20XX to 30 June 20XX

The scheme commences on:

The date this ruling is issued.

Relevant facts and circumstances

You have an Australian Business Number (ABN) and are registered for goods and services tax (GST).

You entered into a contract to purchase Vacant Land.

You were notified of a GST withholding payment (GSTW payment) to be paid to the ATO at settlement.

In the tax information section of the contract of sale, there is a tick in the box GST: Taxable Supply (yes in full) and next to the sentence "Margin Scheme will be used in making the taxable supply".

You did not receive a tax invoice for the purchase of the Vacant Land.

You received an offer to purchase the Vacant Land and, entered into contract to on-sell the Vacant Land.

In the tax Information section of the contract of sale, neither the yes or no boxes next to GST: Taxable Supply have been ticked nor next to the sentence "Margin Scheme will be used in making the taxable supply".

The relevant clause in the contract showed that the parties to the contract of sale agreed that the margin scheme would apply.

Your initial intention when you purchased the property was to keep it for the long run, however you decided to sell due to tight cash flow.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

A New Tax System (Goods and Services Tax) Act 1999 Section 9-20

A New Tax System (Goods and Services Tax) Act 1999 Section 11-20

A New Tax System (Goods and Services Tax) Act 1999 Section 75-5

A New Tax System (Goods and Services Tax) Act 1999 Section 75-20

Reasons for decision

Section 9-5 provides that you make a taxable supply if:

(a)  you make the supply for consideration; and

(b)  the supply is made in the course or furtherance of an enterprise that you carry on; and

(c)   the supply is connected to the indirect tax zone (Australia); and

(d)  you are registered or required to be registered for GST.

However, the supply will not be a taxable supply to the extent the supply is GST-free or input taxed.

In this case, you will satisfy paragraphs 9-5(a) to 9-5(d) as your supply of Vacant Land is for consideration, made in the course of your property investment enterprise, it is connected with the indirect tax zone and you are registered for GST.

The supply of Vacant Land is neither GST-free nor input taxed, therefore it would be a taxable supply under section 9-5.

Subsection 75-5(1) provides that you may choose the margin scheme in working out the amount of GST on a taxable supply of real property you make by:

•         selling a freehold interest in land

•         selling a stratum unit, or

•         granting or selling a long-term lease

if you and the recipient of the supply have agreed in writing that the margin scheme is to apply.

Subsection 75-5(1A) provides that the agreement must be made:

•         on or before the making of the supply, or

•         within such further period as the Commissioner allows.

Under the margin scheme, the GST payable on the supply of certain real property is 1/11 of the margin on the supply. Subsection 75-10(2) provides that 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 lease unless subsection 75-10(3) or section 75-11 applies.

However, you will not be able to use the margin scheme if you acquired the entirefreehold interest, stratum unit or long-term lease througha supply that was ineligible for the margin scheme(Subsection 75-5(2)).

Under paragraph 75-5(3)(a), a supply is ineligible for the margin scheme,if it is a taxable supply to you on which the GST was worked out without applying the margin scheme. That is, you cannot use the margin scheme if when you first purchased the property the sale to you was fully taxable and the margin scheme was not used.

You acquired the Vacant Land from the vendor as a taxable supply to which the vendor has applied the margin scheme. Therefore, you are eligible to apply the margin scheme on the taxable supply of Vacant Land and you will be entitled to use the margin scheme to calculate the GST payable on the sale of the Vacant Land.

As mentioned above, the sale of the Vacant Land is a taxable supply however one of the criteria to apply the margin scheme is that you (as vendor) and the purchaser must have agreed in writing that the margin scheme is to apply. Generally, the agreement must be made on or before the making of the supply.

Conclusion

You were eligible to apply the margin scheme on the sale of the Vacant Land as it satisfied the requirements set out in section 75-5. This includes the requirement of a written agreement between the supplier and recipient as one was entered into on or before the day of supply.

Question 2

Section 11-20 provides that you are entitled to the input tax credit for any creditable acquisition that you make.

You make a creditable acquisition if all the requirements of section 11-5 are met. You make a creditable acquisition if:

(a)  you acquire anything solely or partly for a creditable purpose

(b)  the supply of the thing to you is a taxable supply

(c)   you provide, or are liable to provide, consideration for the supply and

(d)  you are registered or required to be registered.

Section 75-20 provides that an acquisition is not a creditable acquisition if the supply was a taxable supply under the margin scheme. This section has effect despite section 11-5.

In your case, the GST payable on the supply of the Vacant Land to you was worked out under the margin scheme. Hence, your acquisition of the Vacant Land is not a creditable acquisition. Therefore, you are not entitled to claim a GST credit for the acquisition of the Vacant Land.

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