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Margin scheme tax requirements to be eased

THOUSANDS of businesses that owned property before the introduction of GST on July 1 2000 and have since sold the property or will sell in the future must have breathed a collective sigh of relief when the Australian Tax Office recently announced it would relax its GST requirements.

In an earlier move, which would have made thousands of property owners liable to pay GST on the total increased value of their property, the ATO had indicated that the margin scheme would be abolished if the valuation method used was not in accordance with the GST legislation.

The margin scheme gives businesses the option of accounting for GST only on the increase of the value of the property between July 1 2000 and time of sale, meaning businesses do not pay GST on increases in property values before GST began.

The margin scheme requires businesses to undertake a valuation of the property as at July 1 2000.

Unfortunately, many businesses have not followed the proper valuation process and simply guessed the value of their property.

Tax commissioner Michael Carmody said in some cases there had been genuine misunderstandings of the approach required and mistakes had been made in the valuation process.

“Other taxpayers have not followed any of the required approaches and simply estimated the value of the property, often without any supporting documentation,” he said.

“Not surprisingly, many of these causal estimations have resulted in a ‘nil margin’ and nil GST payable.”

Following much community outcry the ATO has now eased this earlier stance and will allow businesses that have elected to use the margin scheme but have not used a valid valuation at June 30 2000 to be given the choice of:

p Substituting another existing valid valuation if one is available (for example, an existing ratings value of the property);

p Obtaining a new valid valuation (for example, by engaging the services of a professional valuer); or

p Defaulting to calculate the margin as the difference between the selling price and the original purchase price.

Mr Carmody said under this approach no penalty would apply in cases of genuine misunderstandings or honest mistakes.

KD Johns & Co managing director Keith Johns said the announcement had prompted quite a bit of relief in the market.

Mr Johns said that prior to the relaxation the ATO had stated that unless there was complete compliance full GST would apply. Now property owners would have time to go back to check and correct any invalid valuations.

“If you sold your property and guessed the valuation you have got to go back and have a valid valuation,” he said.

Mr Johns said the crackdown had the potential to raise enormous amounts of revenue, however, he said he believed the move was not designed to be a revenue raiser but was more to do with tax compliance.

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