GST and margin scheme for sale of property originally purchased after 30 June 2000 under the margin scheme

Can the entity, a property developer, choose to apply the margin scheme under section 75-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it sells real property that it purchased after 30 June 2000 under the margin scheme?

Yes, the entity can choose to apply the margin scheme under section 75-5 of the GST Act when it sells real property that it purchased after 30 June 2000 under the margin scheme.

The entity is a property developer and is registered for goods and services tax (GST).

The entity purchased real property after 30 June 2000. The entity purchased the property through a taxable supply on which the GST was worked out using the margin scheme.

The entity is now selling the freehold interest in the property. The sale of the property by the entity is a taxable supply under section 9-5 of the GST Act.

Subsection 75-5(1) of the GST Act provides that if an entity makes a taxable supply of real property by: (a) selling a freehold interest in land; (b) selling a stratum unit; or (c) granting or selling a long-term lease;

the entity may choose to apply the margin scheme in working out the amount of GST on the supply.

In this case, the entity is making a taxable supply under section 9-5 of the GST Act by selling a freehold interest in property. However, under subsection 75-5(2) of the GST Act, an entity cannot choose to apply the margin scheme if it acquired the freehold interest, stratum unit or long term lease through a taxable supply on which the amount of GST was worked out without applying the margin scheme.

From the facts, the entity purchased the real property through a taxable supply under the margin scheme. Therefore, the entity is entitled to choose to apply the margin scheme under section 75-5 of the GST Act when it sells the property. [Note: The GST payable on a taxable supply is 1/11th of the consideration for the supply. However, under subsection 75-10(1) of the GST Act, if a taxable supply of real property is under the margin scheme, the amount of GST on the supply is 1/11th of the margin for the supply. Subsection 75-10(2) provides that where the real property was acquired on or after 1 July 2000, the margin for the supply is the amount by which the consideration for the supply (sale price) exceeds the consideration for the acquisition (purchase price).]