Retrospective Margin Scheme changes

[Ausprop]

Does anyone understand what this is all about? Apparantly there has been a fairly major change to the way it is calculated and of course it is retrospective - I didn't really undertansd the legal brief! From what I understand the ATO are now saying that if you buy a block for $110k now and develop it and sell it under the margin scheme, the land component is no longer the $110k but whatever it was worth in July 2000.... which could be say $60k (evenj though you didn't own it then). Am I on the right track with this?

[Mry]

I think you may be looking at one of the transitional schemes that was around when the GST was introduced. People were not going to happy about the fact that the legislation allowed them to sell new property on 30 June 2000 without GST, but the next day they had to add 10% on top of the purchase price. Ths allowed builders to sell property to private purchasers for a lesser amount of GST.

Check here for more of an overview.
http://www.ato.gov.au/businesses/content.asp?doc=/content/33107.htm

[Ausprop]

no it's definitely a new thing that is a fall out from :

"Tax Laws Amendment (2005 Measures No 2) Bill 2005

On 17 March 2005 a new bill was introduced to amend the GST law "

The lawyers will hopefully send another email soon that goes into detail as I threw out the paper that I read it in. I will keep you posted.

[coastymike]

The changes adjust some valuation rules, particularly for the calculation of the margin for property that was acquired either as a GST-free going concern or GST-free farmland. In such cases the margin will be calculated as the difference between the GST-inclusive sale price and the valuation of the property as at 1 July 2000 regardless of the date on which the property was acquired after 1 July 2000. This may result in a greater margin. This amendment will apply from 17 March 2005 if this Bill is enacted in its current form.

The “cost of acquisition” to be used in determining the margin on the sale of property which was acquired GST-free as either the supply of a going concern or as farmland will be the GST inclusive market value of the property at 1 July 2000, and not the price paid by the vendor for the property under the GST-free supply after that date.

[Ausprop]

an update from Phillips Fox:

GST margin scheme – a win for taxpayers
Tax Laws Amendment (2005 Measures No 2) Bill 2005

We sent out an update a little over two months ago, concerning the introduction of a bill amending the margin scheme rules.

The government has now announced that it will withdraw the bill.

This is good news to all those contemplating selling real property using the margin scheme, or transferring property in a GST group.

The bill was ostensibly aimed at certain arrangements that took advantage of the GST rules, including the margin scheme, to reduce or avoid GST on the sale of land. However, the amendments proposed in the bill went much further. They had a retrospective, and often inappropriate, effect on genuine commercial arrangements. The main drawback was the calculation of the margin by reference to the value of the land on 1 July 2000, regardless of whether the current owner of the land actually owned the land at that date.

Although this bill has been dropped, it is very likely that the ATO and the Treasury will adopt additional measures to tackle the GST avoidance arrangements they targeted in the first place. We will keep a close eye on future developments in this field to ensure that genuine commercial arrangements are not again placed in jeopardy.