Treasury has released draft amendments to the treatment of subdivided land under the GST margin scheme in the A New Tax System (Goods and Services Tax) Act 1999 (“GST Act”). The proposed changes seek to clarify the valuation methods that a taxpayer may use to calculate the margin on a taxable supply of subdivided land.

In the 2010-11 Budget, the Federal Government announced that it would amend the margin scheme provisions to make minor technical amendments to allow an approved valuation of the premises to be used to calculate the margin for subdivided land. The Government has now released an exposure draft of Tax Laws Amendment (2012 Measures No. 5) Bill 2012: GST margin scheme and subdivided land (“the Bill”) to replace current section 75-15 of the GST Act.

Current law: the margin scheme and subdivided land

Division 75 of the GST Act sets out an alternative method for calculating the GST on taxable supplies of real property. Subject to certain conditions, GST is calculated on the “margin” for the supply of land. The margin is the amount by which the sale price exceeds:

  • the consideration paid by the supplier for its initial acquisition of the land (“Consideration Method”);
  • an approved valuation as at 1 July 2000 or another date (“Valuation Method”); or
  • the GST-inclusive market value of the land at the time of the initial supply (“GST-inclusive Market Value Method”).

Where the supplier is only selling part of the land it initially acquired, the Commissioner of Taxation (“Commissioner”) has indicated that an apportionment on a fair and reasonable basis should take place when calculating the margin (ATO Taxation Ruling 2006/7 [66]-[69]). However, the current provision, section 75-15, states that the consideration for the supplier’s acquisition of the part of the land being sold is only the corresponding proportion of the consideration for the land that the supplier acquired. As the section makes no reference to the Valuation Method or the GST-inclusive Market Value Method, there is uncertainty as to whether those methods can be applied if otherwise appropriate.

Removing the anomaly

The Explanatory Memorandum to the Bill provides that as a matter of practice the Commissioner has allowed taxpayers to use a corresponding proportion of an approved valuation or GST-inclusive market value, where appropriate, to determine the margin for subdivided land. The proposed amendments aim to make the GST Act conform to this reality.

The proposed amendments, which will apply to supplies made on or after the date that the new provisions are given Royal Assent, are welcomed as they will remove an anomaly in the GST Act.

The closing date for submissions on the exposure draft is Wednesday, 12 September 2012.

Copies of the draft legislation and the explanatory memorandum can be found here.