From sole traders building a couple of units or houses to listed development companies building complexes with many apartments and complete subdivisions, there are numerous GST issues that need to be addressed to ensure that you comply with the requirements of the Goods and Services Tax Act 1999 (GST Act).
The Margin Scheme was included in the original design of the GST Act as a special rule to allow sales of residential property by developers to only be subject to GST on the "value added" by the developer.
The scheme is an alternative method of calculating the GST payable on sales of real property, it allows sellers of real property to pay GST equal to one-eleventh of the ‘margin' rather than one-eleventh of the total sale price. Depending on when, and from whom the property was purchased, the ‘margin' is generally the difference between the sale price and the amount the seller paid for the property.
Generally, the Margin Scheme is accessible where the supplier has acquired property under the scheme, and the property is input taxed (ie. existing or non-new residential premises) or the property was acquired from an unregistered (for GST) source.
Changes have been made in last year's budget that clarify the eligibility of a supplier accessing the Margin Scheme where the land was acquired as a part of a going concern. The new measures require vendor's applying the Margin Scheme after acquiring the land in a GST-free supply, to use the former vendor's Margin Scheme "cost base" rather than the consideration they paid to acquire their interest in the land.
Suppliers may not use the Margin Scheme if they are selling real property they acquired through a taxable sale on which the margin scheme was not used.
For sales of real property made under contracts entered into on or after 29 June 2005, suppliers and purchasers of real property must agree in writing to use the Margin Scheme by the time the property is supplied (usually at settlement).
For more information about how the Margin Scheme applies to suppliers of real property please contact your local WHK office.
Principal, Accounting & Business Advisory
WHK Ballarat
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