GST and choosing to apply the margin scheme on a supply of a fractional interest in land

Can the entity, an individual who owns a fractional interest in land as a tenant in common, 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 its fractional interest in the land?

Yes, the entity may choose to apply the margin scheme under section 75-5 of the GST Act when it sells its fractional interest in the land that it owns as a tenant in common.

The entity is an individual who owns a fractional interest in land as a tenant in common.

The entity and another individual (the co-owner) acquired the land before 1 July 2000. The entity is now selling its fractional interest in the land.

The entity is registered for goods and services tax (GST) and the entity's supply of its fractional interest in the land is a taxable supply under section 9-5 of the GST Act.

Subsection 75-5(1) of the GST Act provides that where an entity 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 entity may choose to apply the margin scheme in working out the amount of GST payable on the supply.

The entity's supply of its fractional interest in the land is a taxable supply under section 9-5 of the GST Act.

The nature of the interest held by a tenant in common was considered by the High Court in Nullagine Investments Pty Ltd v. Western Australian Club Inc (1993) 177 CLR 635 where Brennan J expressed that an interest held in land by a tenant in common is a freehold interest in land.

As such, when the entity sells its fractional interest in the land, the entity is selling a freehold interest in land and satisfies the requirement of subsection 75-5(1) of the GST Act.

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.

The entity and the co-owner acquired the land before 1 July 2000. As this was before GST legislation was introduced, the entity's acquisition was not through a taxable supply and subsection 75-5(2) of the GST Act does not exclude the entity from choosing to apply the margin scheme.

Therefore, the entity may choose to apply the margin scheme under section 75-5 of the GST Act when it sells its fractional interest in the land. Note. Two or more persons may own a stratum unit or a long-term lease jointly. For the purposes of the GST Act, if an entity makes a taxable supply of real property by selling its fractional interest in a stratum unit or granting or selling its fractional interest in a long-term lease, the supply would be considered to fall within subsection 75-5(1) of the GST Act.