GST, Going Concern and the Margin Scheme

The apartment sale is a taxable supply of new residential premises, so GST applies. Sarah uses the margin scheme, which allows GST to be calculated on the margin (the difference between the sale price and the cost base) rather than the full sale price. The margin scheme is available for the sale of new residential premises if the supplier acquired the land before 1 July 2000, or if the supplier and buyer agree in writing, or if the supplier is a member of a GST group? Actually the margin scheme can be used for new residential premises if the supplier constructed the premises and the land was acquired before 1 July 2000, or if the supplier acquired the premises as a going concern, or if the supplier and buyer agree in writing. Sarah built the apartment, so she can use the margin scheme if she and the buyer agree in writing. The margin is the sale price (AUD 1.1 million) less the cost base of the land (AUD 400,000) and any construction costs? The margin scheme calculation under Div 75 ITAA 1997: the margin is the consideration for the supply minus the cost base of the land, or the value of the land at the date of acquisition, plus certain costs. The cost base of the land includes the purchase price and incidental costs. Sarah acquired the land for AUD 400,000 including GST. If she is using the margin scheme, she cannot claim input tax credits on the acquisition of the land. She must have not claimed input tax credits on the land. The margin = 1,100,000 - 400,000 = AUD 700,000. The GST on the margin is 1/11 of the margin = AUD 63,636.36. The GST is payable on the sale. The deposit of AUD 100,000 received in the prior period: for a cash basis taxpayer, GST is payable when the consideration is received, to the extent of the consideration received. However, for supplies of real property, the GST is payable on the earlier of the invoice or the consideration received. Under s 29-5, the GST is payable on the earlier of the day the invoice is issued or the day the consideration is received. For cash basis, the GST is payable when the consideration is received. The deposit is consideration for the supply, so GST is payable on the deposit in the prior period, based on the margin scheme? The margin scheme applies to the supply, and the GST on the deposit is calculated on the margin attributable to the deposit. The margin is determined at the time of the supply. For cash basis, the GST on the deposit is 1/11 of the deposit? But under the margin scheme, the GST is calculated on the margin, not the consideration. The deposit is part of the consideration. The GST on the deposit is calculated by applying the margin scheme formula to the deposit. The margin percentage = margin / total consideration = 700,000 / 1,100,000 = 63.636%. The GST on the deposit = 100,000 * 63.636% / 11 = AUD 5,785.12? Actually the GST on the deposit is 1/11 of the margin portion of the deposit. The margin portion of the deposit = deposit * (margin / total consideration) = 100,000 * (700,000/1,100,000) = AUD 63,636.36. GST = 1/11 of that = AUD 5,785.12. The remaining GST on the balance is payable in the current period when the balance is received. The total GST on the sale is AUD 63,636.36. The GST on the deposit was payable in the prior period, and the balance in the current period. Sarah should have accounted for GST on the deposit in the prior period. If she did not, she may need to amend. The input tax credits of AUD 50,000 can be offset against the GST payable. The net GST for the current period = GST on the apartment balance + GST on the warehouse - input tax credits. The apartment balance GST = total GST - deposit GST = 63,636.36 - 5,785.12 = AUD 57,851.24. The warehouse: if the going concern exemption applies, the sale is GST-free, so no GST. The going concern exemption requires that the supplier and buyer agree in writing that the supply is of a going concern, and the buyer is registered for GST, and the supplier carries on the enterprise until the day of supply. The warehouse is used for a taxable activity, and the buyer is registered, and there is a written agreement. So the sale is GST-free. Therefore, no GST on the warehouse. The input tax credits of AUD 50,000 can be claimed. Net GST payable for the current period = 57,851.24 - 50,000 = AUD 7,851.24. But Sarah must also account for the GST on the deposit in the prior period, which she may have already done. If not, she should amend the prior period. The margin scheme requires that the buyer is not entitled to an input tax credit? The buyer of the apartment is not registered, so no issue. The margin scheme also requires that the supplier has not claimed input tax credits on the land. Sarah should ensure she did not claim input tax credits on the land acquisition. If she did, she cannot use the margin scheme. The answer should note the timing rules and the need for written agreement for the margin scheme. Also, the deposit is subject to GST in the prior period, and the GST on the deposit is calculated using the margin scheme.

The sale of the warehouse is a supply of real property. If the going concern exemption applies, the supply is GST-free under s 38-325 GST Act. The conditions are: (1) the supplier and the recipient have agreed in writing that the supply is of a going concern; (2) the recipient is registered for GST or required to be registered; (3) the supplier carries on the enterprise until the day of the supply; (4) the supply is of all of the things necessary for the continued operation of the enterprise; (5) the supplier does not have the intention to carry on a similar enterprise? Actually the conditions are in s 38-325: the supply is of a going concern if the supplier carries on the enterprise until the day of the supply, and the recipient is registered or required to be registered, and the supplier and recipient have agreed in writing that the supply is of a going concern. The warehouse is used for a taxable activity, and the buyer is registered. There is a written agreement. Sarah must carry on the enterprise until the day of supply. If she sells the warehouse as part of the sale of the business, and the buyer continues the business, the exemption applies. However, if the warehouse is just a property sale and the buyer does not continue the enterprise, the exemption may not apply. The question says the warehouse has been used for a taxable activity, and the buyer is registered. It does not say the buyer will continue the business. The going concern exemption requires that the supply is of a going concern, meaning the enterprise is sold as a whole. If Sarah is only selling the warehouse and not the business, the exemption may not apply because the warehouse is not a going concern by itself. The sale of a single asset can be a going concern if the asset is used in a business and the buyer will continue the business. The facts are not clear. If the exemption does not apply, the sale is taxable, and GST is payable on the sale price. The GST is 1/11 of the sale price = 2,200,000 / 11 = AUD 200,000. Sarah can claim input tax credits on the acquisition of the warehouse? She acquired it in 2015 for AUD 1.5 million including GST. If she used it for a taxable activity, she could claim input tax credits on the acquisition. If she claimed them, she would have reduced the cost base. If the sale is taxable, she may have an increasing adjustment if she previously claimed input tax credits and the sale is GST-free? Actually if the sale is GST-free, she may have an adjustment for the change in use. If the sale is taxable, no adjustment. The going concern exemption is optional; the supplier and buyer can agree to apply it or not. If they agree to apply it, the sale is GST-free, and the buyer does not pay GST, but the buyer may be liable for GST on the sale if they later sell the property. The buyer is registered, so they can claim input tax credits if the sale is taxable. If the sale is GST-free, the buyer cannot claim input tax credits. The parties should consider the commercial implications. If the going concern exemption does not apply, Sarah must pay GST of AUD 200,000. She can offset input tax credits. The answer should advise Sarah to ensure the written agreement is in place and that the conditions are met. If the conditions are not met, the sale is taxable, and she must account for GST. She should also consider the margin scheme for the warehouse? The margin scheme is not available for the sale of a going concern? The margin scheme can apply to the sale of real property, but if the sale is GST-free, no GST. If the sale is taxable, she could use the margin scheme if eligible. The warehouse was acquired in 2015, so the margin scheme may be available if she and the buyer agree in writing and she did not claim input tax credits on the acquisition. If she claimed input tax credits, she cannot use the margin scheme. The answer should discuss the conditions and the consequences.