Goods and Services Tax: Margin Scheme Valuation Requirements Determination MSV (No. 53) 2015

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Goods and Services Tax: Margin Scheme Valuation Requirements Determination MSV (No 53) 2015

 

Explanatory Statement

 

General Outline of Instrument

  1. This determination is made under section 75-35 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
  2. The determination specifies requirements for making valuations for the purposes of the margin scheme under paragraph 75-10(3)(b) of the GST Act.
  3. The determination is a legislative instrument for the purposes of the Legislative Instruments Act 2003.

 

Date of effect

4.      The determination commences on the day after registration.

5.      The determination does not apply retrospectively.

 

What is this instrument about

6.      Under Division 75 of the GST Act, the margin scheme may be applied to work out the GST on certain supplies of real property.  The GST worked out under the margin scheme is 1/11th of the ‘margin’ for the supply.

7.      In specified circumstances, the margin for the supply is the amount by which the consideration for the supply exceeds a valuation of the relevant freehold interest, stratum unit or long-term lease at the valuation date, commonly 1 July 2000 (the date of commencement of GST).  The valuation must comply with any requirements determined in writing by the Commissioner for making valuations for the purposes of Division 75 of the GST Act.

8.      This determination specifies requirements for making valuations for that purpose.

 

What is the effect of this instrument

9.      This determination extends the operation of the costs of completion valuation method contained in A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination (No. 2) 2000 beyond the time period covered by the A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2005/2. 

10.  Under A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination (No. 2) 2000, the costs of completion method could be used to value premises that were partly completed at the valuation date.  However, the costs of completion method could not be used for supplies made after 1 July 2005.

11.  The condition that the costs of completion method could not be used for supplies made after 1 July 2005 could operate 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.  In these circumstances, without this determination, it would be necessary for the supplier to incur additional valuation costs.

12.  To make compliance with the valuation requirements easier and cheaper in these circumstances, this determination extends the availability of the costs of completion method to supplies made after 1 July 2005 where:

(a)  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; and

(b)  the supplier would have been able to use the costs of completion method in accordance with the A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination (No.2) 2000 but for the supply being made after 1 July 2005 .

13.  Compliance cost impact: minor- there will be no or minimal impacts for both implementation and ongoing compliance costs. The legislative instrument is minor or machinery in nature. 

Background

14.  This determination replaces the A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2005/2.

 

Consultation:

15.  Section 18 of the Legislative Instruments Act 2003 specifically provides for circumstances where consultation may not be necessary or appropriate. One of those circumstances is where the instrument is considered minor or machinery in nature, and does not substantially change the law.

16.  There is no substantive change from the previous instrument therefore the instrument is considered minor or machinery in nature.

17.  As such, no further consultation has been undertaken in the development of this instrument.

 

 

 

 

James O’Halloran

Deputy Commissioner of Taxation

22 September 2015

 

 

Legislative references:

A New Tax System (Goods and Services Tax) Act 1999

Legislative Instruments Act 2003

Human Rights (Parliamentary Scrutiny) Act 2011

 

Statement of Compatibility with Human Rights

This statement is prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

 

Goods and Services Tax: Margin Scheme Valuation Requirements Determination MSV (No. 53) 2015

 

This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

 

Overview of the Legislative Instrument

This Legislative Instrument extends the use of the ‘cost of completion valuation method’ contained in A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination (No.2) 2000 in circumstances where the supplier entered into the contract before 1 July 2005, but the supply under the contract did not occur until after 1 July 2005.

 

Human rights implications

This Legislative Instrument does not engage any of the applicable rights or freedoms as it is considered to be minor or machinery in nature and does not substantially change the law.

 

Conclusion

This Legislative Instrument is compatible with human rights as it does not raise any human rights issues.

 

 

Overview

The Goods and Services Tax: Margin Scheme Valuation Requirements Determination MSV (No. 53) 2015 was enacted to address the issue of supplies that were contracted for before 1 July 2005 but settled after this date, thus falling outside the time period covered by the previous valuation requirements. This determination was made under section 75-35 of the A New Tax System (Goods and Services Tax) Act 1999, and the policy objective was to provide flexibility in the application of the costs of completion method, thereby easing compliance and reducing costs for suppliers who were affected by delays beyond their control. The determination extends the operation of the costs of completion valuation method, allowing its use for supplies made after 1 July 2005 if certain conditions are met. The instrument was developed by the Commissioner of Taxation and is considered minor or machinery in nature, with minimal compliance costs, and does not require further consultation as it does not substantially change the law.

Scope and Application

The Goods and Services Tax: Margin Scheme Valuation Requirements Determination MSV (No. 53) 2015 applies to suppliers who entered into contracts for the supply of property before 1 July 2005, but whose settlement occurred after this date, thereby affecting the application of the costs of completion valuation method. The scope of the Act extends to the valuation of real property under the margin scheme as outlined in Division 75 of the A New Tax System (Goods and Services Tax) Act 1999. This determination ensures that the valuation method can be applied to supplies made after 1 July 2005, provided that the contract for the supply was entered into before this date, thereby avoiding additional valuation costs that might otherwise be incurred. The Act does not apply retrospectively and is effective from the day after registration, making no substantive changes to the existing law. As such, no consultation was necessary in its development, and it is considered minor or machinery in nature, with minimal impact on compliance costs.

Key Provisions

The Goods and Services Tax: Margin Scheme Valuation Requirements Determination MSV (No 53) 2015 primarily serves to extend the application of the 'cost of completion valuation method' for the purposes of determining the margin scheme under Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). According to section 75-10(3)(b) of the GST Act, the valuation of certain real property supplies can be based on the margin, which is the amount by which the consideration for the supply exceeds a valuation of the relevant freehold interest, stratum unit, or long-term lease at the valuation date. This determination specifies that for supplies made after 1 July 2005, where a contract was entered into before this date, the costs of completion method can still be applied (sections 12(a) and 12(b)). Parties subject to this determination, particularly those involved in the supply of real property, must ensure that the valuation method used complies with the requirements set out in this legislative instrument. This includes verifying that the valuation date is appropriately applied and that the costs of completion method is used correctly, particularly for contracts entered into before 1 July 2005 but settled after this date. Failure to comply with these valuation requirements could result in incorrect calculations of the GST liability for the supply, potentially leading to financial penalties or disputes with the Australian Taxation Office (ATO). There are no explicit offences or penalties mentioned in the explanatory statement for breaches of this determination. However, the incorrect application of the valuation requirements can result in the ATO imposing financial penalties, interest on unpaid GST, and potentially requiring the supplier to rectify the valuation and GST liability retrospectively. The ATO may also seek to recover any GST that was not correctly accounted for due to non-compliance with the valuation requirements. Given the nature of the determination, it is essential for suppliers to adhere to the valuation methods specified to avoid any potential financial repercussions or disputes.

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