GST margin scheme an ATO target

On March 17, a new bill was introduced to amend the GST law to ostensibly remove unintended outcomes that arise from the interaction of various provisions of the Act, allowing property owners to reduce their GST liability on supplies of real property; endure entities joining a GST group have appropriate adjustments to input tax credits and address certain aspects regarding the application of the margin scheme. Anyone contemplating selling real property using the margin scheme, or transferring property in a GST group should act. Those who have transferred property in a GST group should look for commercial and legal justifications for continuing with these arrangements. The Australian Tax Office has previously indicated that it will undertake a ‘number of activities’ in relation to such arrangements. In 2004, the ATO issued taxpayer alerts TA 2004/2, TA 2004/6, TA 2004/7 and 2004/8, as well as ruling GSTR 2004/3. These documents affect land developments where one party starts the work of developing land and another party finishes it and then sells it to the public. These documents announced that the ATO is targeting certain arrangements involving the grouping provisions, margin scheme, going concern and joint venture rules to reduce or avoid GST. In most cases, the reduction of GST was done by converting the supply from that of new residential premises to an exempt or input taxed supply. The arrangements targeted in those alerts will now be prohibited by legislation. The explanatory memorandum to the bill states that this amendment merely clarifies, rather than changes, the existing law. So, someone who has been a party to the arrangements outlined in the alerts, will be in breach of law from the start. In addition, the legislation introduces rules that require, amongst other thing, valuations to be carried out on inherited property, and for the parties to agree in writing if using the margin scheme. For further information contact Zoran Vukojevic, solicitor on 9288 6939 or Peter Beekink, partner on 9288 6751. Phillips Fox

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