Development 3 Townhouses - Margin Scheme

Discussion in 'Accounting and Tax' started by PMMELB, 10th Oct, 2013.

  1. PMMELB

    PMMELB Member

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    Hi All,

    After days and days of looking at ATO websites and forums, I still haven't got a clear idea of the Margin Scheme. Any chance you guys could assist?

    Scenario:
    -Planning an acquisition of a free standing residential property on separate title. 3 Bed, 1 car single storey.
    -The property is on auction (executors sale) in Melbourne.
    -Purpose is subdivision and develop/construct 3 townhouses.
    -All townhouses are to be sold.
    -The acquisition will occur under my company which is registered for GST.
    -The vendor is not registered for GST.

    Questions:
    1) Generally speaking, does a project usually benefit from a margin scheme from a developers point of view?

    2) Do I need to purchase the property under the margin scheme (ie include the words "margin scheme" in the contract of sale) in order for me to use the margin scheme when I sell the 3 units? How does this relate to each other?

    3) If yes, does the vendor need to agree to this at auction? Does the margin scheme affect the Vendor at all if he/she is not registered for GST?

    Thanks guys. Just trying not to shoot myself in the foot for my first TH development.
     
  2. Aaron_C

    Aaron_C Finance Broker

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    1) Depends but if you use the margin scheme you can claim the GST credits for the builder's invoices along the way.
    2) I think you put the margin scheme words on the COS when you sell, not at this current stage.
     
  3. PMMELB

    PMMELB Member

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    Hi Aaron.

    So in effect, buying the land on a margin scheme is not a requirement to use it along the way, if you want to claim back the GST on the construction?
     
  4. Aaron_C

    Aaron_C Finance Broker

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    Well GST is not payable on the acquisition of residential land, particularly if the vendor isn't registered for GST. The margin scheme recognises this so even though you have to charge GST upon the sale of your new properties that are built, you only charge GST on the 'margin' above the initial land cost.
     
  5. Paul@PFI

    Paul@PFI Tax, SMSF & Planning

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    Gst

    The margin scheme comes with conditions...BOTH buyer and seller may need to be registered for GST is one....contract conditions, cant be used "twice" problems etc etc

    Get some tax advice. This isnt where you get tax advice.
     
    Last edited: 10th Oct, 2013
  6. PMMELB

    PMMELB Member

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    According to the ATO website:

    Using the margin scheme when you sell property

    If you sell property as part of your business and you are registered for GST, you may be able to use the margin scheme to work out how much GST you must pay.

    Whether you can use the margin scheme depends on how and when you first purchased your property. For GST purposes the date when settlement occurs will be the date that you have purchased the property.

    You can use the margin scheme if you purchased the property before 1 July 2000 (the start of GST), or if it is purchased after 1 July 2000 from someone that:

    was not registered or required to be registered for GST
    who sold you existing residential premises
    who sold the property to you as part of a GST-free going concern ,or
    who sold you the property using the margin scheme.

    You cannot use the margin scheme if when you first purchased the property the sale to you was fully taxable and the margin scheme was not used. In this case the amount of GST included in the price you paid is one-eleventh of the full purchase price.
     
  7. mattnz

    mattnz Member

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    This is covered in detail in one of the free lessons available as part of the trial of our property development course. It is written by an accountant who specialises in property development.

    The information on property development taxes is located at http://www.smalldevelopments.com.au/courses/aspiring-developers-course-trial/tax-property-developer

    You will need to sign up for the free trial to be able to view all of the content in this lesson which is part of our property development course at http://www.smalldevelopments.com.au/store/show/aspiring-developers-course-free-trial

    Cheers,
    Matt