Issue
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), to both components of a sale, being a strata titled residential unit and a separately strata titled car space, when they are sold under the one contract and the strata titled car space was acquired through a taxable supply on which the goods and services tax (GST) was worked out without applying the margin scheme?
Decision
No, the entity cannot choose to apply the margin scheme under section 75-5 of the GST Act to both components of a sale, being a strata titled residential unit and a separately strata titled car space, when they are sold under the one contract.
The entity cannot choose to apply the margin scheme on the component of the sale that relates to the separately strata titled car space as it was acquired through a taxable supply on which the GST was worked out without applying the margin scheme.
Facts
The entity is a property developer. The entity is selling its freehold interest in a strata titled residential unit (residential unit) and a separately strata titled car space (car space), under the one contract, for a single price. The sale contract includes reference to both the residential unit and the car space.
The supply of the residential unit is a taxable supply of new residential premises. The car space is supplied as part of the residential unit and takes on the same character of new residential premises.
The entity acquired the freehold interest in the residential unit prior to 1 July 2000. The entity acquired the car space after 1 July 2000 as a taxable supply on which GST was worked out without applying the margin scheme.
The sale of the residential unit with the car space is two separate supplies for the purposes of the GST Act.
The entity is registered for GST and the entity's sale of the residential unit with the car space comprises two separate taxable supplies under section 9-5 of the GST Act.
Reasons for Decision
Subsection 75-5(1) of the GST Act provides that where a vendor makes a taxable supply of real property by: • selling a freehold interest in land • selling a stratum unit, or • granting or selling a long-term lease
the vendor may choose to apply the margin scheme in working out the amount of GST on the supply.
The entity is selling its freehold interest in a residential unit and a car space, under the one contract, for a single price. Therefore, the requirements of subsection 75-5(1) of the GST Act are satisfied.
However, subsection 75-5(2) of the GST Act, provides that 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 GST was worked out without applying the margin scheme.
When the entity sells the residential unit with a car space, it makes two separate supplies for the purposes of the GST Act. The residential unit was acquired prior to 1 July 2000 and the introduction of GST. As such, the acquisition of the residential unit was not by way of a taxable supply on which the GST was worked out without applying the margin scheme. Therefore, subsection 75-5(2) of the GST Act does not exclude the entity from choosing to apply the margin scheme to the component of the sale that refers to the residential unit.
The entity acquired the car space after 1 July 2000 as a taxable supply on which GST was worked out without applying the margin scheme. As such, subsection 75-5(2) of the GST Act does exclude the entity from choosing to apply the margin scheme to the component of the sale that refers to the car space.
Therefore, the entity cannot choose to apply the margin scheme under section 75-5 of the GST Act to both components of a sale, being a strata titled residential unit and a separately strata titled car space, when they are sold under the one contract.
The entity can choose to apply the margin scheme under section 75-5 of the GST Act on the component of the sale that relates to the strata titled residential unit.
The entity cannot choose to apply the margin scheme under section 75-5 of the GST Act on the component of the sale that relates to the separately strata titled car space as it was acquired through a taxable supply on which the GST was worked out without applying the margin scheme. Note: Subsection 75-10(1) of the GST Act provides that 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(3) of the GST Act provides that, where the real property was acquired before 1 July 2000 and a valuation has been undertaken that complies with any requirements determined by the Commissioner, the margin for the supply is the amount by which the consideration for the supply (sale price) exceeds the valuation of the freehold interest in the land.