A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination (No. 2) 2000

Overview

The A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination (No. 2) 2000 was enacted to provide clarity and guidelines on how the valuation of partly completed real property should be determined under the margin scheme for goods and services tax (GST) purposes. This legislative instrument was introduced to address the need for precise valuation methods for real property that is only partly completed at the time of supply. It was made under the authority of the A New Tax System (Goods and Services Tax) Act 1999 and the Acts Interpretation Act 1901 by Lawrie Hill, Assistant Commissioner of the Goods and Services Tax Program, on behalf of the Commissioner of Taxation. The overarching policy objective is to ensure that businesses can accurately calculate their GST liability when making taxable supplies of partly completed real property, thereby maintaining the integrity of the GST system.

Scope and Application

The A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination (No. 2) 2000 applies to entities or individuals who acquired a freehold interest in land, a stratum unit, or a long-term lease prior to 1 July 2000 and subsequently make a taxable supply of such properties by selling the freehold interest, selling a stratum unit, or granting or selling a long-term lease. This legislation is applicable in the context of the Commonwealth of Australia, providing a framework for the valuation of partly completed premises under the margin scheme for GST purposes. The valuation requirements are intended for scenarios where the property was acquired before the commencement of the A New Tax System (Goods and Services Tax) Act 1999. The determination specifies two methods for valuation: either by a professional valuer or using the costs of completion method. Notably, the determination does not extend its application to acquisitions made after 1 July 2000. Furthermore, the valuation under the costs of completion method is limited to supplies occurring on or before 1 July 2005. This determination provides the necessary guidelines to ensure that the valuation of partly completed premises is conducted in a manner compliant with GST regulations.

Key Provisions

The A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination (No. 2) 2000 sets out the rules for valuing partly completed real property under the margin scheme for GST purposes. According to section 4, the valuation can be determined either by a professional valuer (Method 1) or by the costs of completion method (Method 2). Method 1 requires a written valuation by a professional valuer, who must consider the market value of the completed premises, the cost to complete the partly completed premises, and the profit margin and holding costs attributable to the period on or after the valuation date (section 5). Method 2 requires calculating the costs incurred prior to the valuation date as a percentage of the total costs of completion, based on absorption costing, and including certain costs such as land at cost, direct construction costs, internal infrastructure costs, and external infrastructure costs directly related to the property, while excluding administrative costs and holding costs (section 6). Parties who have acquired the freehold interest in land, stratum unit or long-term lease before 1 July 2000 and make 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, and choose to apply the margin scheme in working out the amount of GST on the supply for partly completed premises as at the valuation date, must comply with the valuation requirements in this determination (section 3). They must ensure that the valuation is conducted according to one of the specified methods and that the professional valuer or costs of completion method is applied correctly to determine the value of the partly completed premises. Breach of the requirements in this determination may lead to civil or criminal consequences, although specific penalties are not outlined within this determination. Generally, under the A New Tax System (Goods and Services Tax) Act 1999, penalties for non-compliance with GST obligations can include fines up to 25% of the GST evaded or a maximum fine of $11,000 for individuals, and higher penalties for corporations. Additionally, failure to comply with valuation requirements can result in the Commissioner adjusting the taxable value of the supply, potentially leading to increased GST liabilities.