A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2005/2

Overview

The A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2005/2 was enacted in 2005 to address a specific issue concerning the valuation of real property under the margin scheme in the context of the Goods and Services Tax (GST) system. The GST Act 1999 introduced the margin scheme to simplify the calculation of GST on certain real property supplies, where the GST is based on a fraction of the margin—defined as the difference between the consideration for the supply and a valuation of the property. This legislative instrument was developed under the authority of the Commissioner of Taxation and is legally binding. It provides clarity and continuity in the application of valuation methods, particularly addressing the limitations of the costs of completion method that previously could not be applied to supplies made after 1 July 2005. The policy objective of this determination is to ease compliance and reduce costs for taxpayers who enter into contracts before this date but complete the supply after it, thereby avoiding unnecessary additional valuation expenses. The determination specifically aims to extend the use of the costs of completion method for supplies made after 1 July 2005, in cases where the contract was entered into before this date, thereby providing a practical solution to avoid the harsh outcome of having to revalue properties under different rules. This legislative instrument was developed after consultation with relevant industry groups and stakeholders, ensuring that the needs of taxpayers and the administrative efficiency of the tax system are balanced.

Scope and Application

The A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2005/2 applies to suppliers of real property who are using the margin scheme to calculate the GST on their taxable supplies. It specifies the requirements for making valuations for the purposes of applying the margin scheme under the A New Tax System (Goods and Services Tax) Act 1999. The determination is legally binding upon the Commissioner of Taxation and applies to valuations made for supplies made on or after 1 July 2005. The determination extends the availability of the costs of completion method to supplies made after 1 July 2005, where the supplier entered into a contract for the supply of property before 1 July 2005, but the supply under the contract is made after that date. The costs of completion method could not be used for supplies made after 1 July 2005, which could have operated harshly where a supplier had entered into a contract on the basis that the supply would be made by 1 July 2005, but for whatever reason, settlement is delayed until after that date. This determination aims to make compliance with the valuation requirements easier and cheaper in these circumstances.

Key Provisions

The main operative sections of the A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2005/2 (the Determination) pertain to the valuation requirements for the margin scheme under the GST Act. Section 3 specifies the valuation requirements for making valuations for the purposes of the margin scheme under paragraph 75-10(3)(b) of the GST Act, while section 4 addresses the circumstances under which the costs of completion valuation method may be used for supplies made after 1 July 2005. The Determination also specifies the conditions under which a supplier may use the costs of completion method for supplies made after 1 July 2005 if the supplier entered into a contract for the supply of property before 1 July 2005 but the supply under the contract is made after that date, as stated in section 5. The Determination imposes obligations and requirements on suppliers who are subject to the margin scheme under the GST Act. Suppliers must ensure that their valuations comply with the requirements specified in the Determination, and they must use the costs of completion valuation method where the conditions in section 5 are met. Suppliers must also ensure that they have entered into a contract for the supply of property before 1 July 2005 and that the supply under the contract is made after that date to use the costs of completion valuation method. Additionally, suppliers must ensure that their valuations are made in accordance with any other requirements determined in writing by the Commissioner for making valuations for the purposes of Division 75 of the GST Act. Failure to comply with the requirements specified in the Determination may result in civil or criminal consequences. Section 13 of the Legislative Instruments Act 2003 provides that a person who contravenes a provision of a legislative instrument is liable to a penalty. The maximum penalty for a civil penalty provision is 50 penalty units, while the maximum penalty for a criminal penalty provision is 100 penalty units. The Determination does not specify any penalties for breach, but it is important to note that failure to comply with the requirements may result in the supplier being liable to pay GST on the full amount of the consideration for the supply rather than just the margin. Additionally, the supplier may be subject to interest and penalties for late lodgment of a GST return or for making a false or misleading statement in a GST return.