Devil is in the detail when applying the margin scheme to property sales
The margin scheme is more technically complex than it appears, making it one of the most fertile areas in GST that may be exposed to future litigations, according to Brisbane professional services firm BDO Kendalls.
BDO Kendalls partner, Eddie Chung, says there are a number of myths circulating aboutthe margin scheme, which allows the GST on the sale of a property to be calculated on the‘margin’ rather than the sale price.
“For instance, the margin scheme cannot be used in every property sale,” Mr Chung says.
“Generally, the margin scheme can only be used if the property was originally bought underthe margin scheme or on a GST-free or input taxed basis.
“The margin scheme may also be used if the property was purchased before 1 July 2000,which was when GST was first introduced.”
Mr Chung says that although under the original legislation, the decision to use the marginscheme was solely the choice of the seller, this is no longer the case.
“Given some of the practical issues of giving sellers the sole discretion in applying the margin scheme, the current law requires that a written agreement be made between the seller and purchaser, generally on or before settlement,” Mr Chung says.