There are circumstances where the margin scheme cannot be used. GSTR 2006/8 explains at para 32 quite clearly how s75-5(3) operates for most developers. (This ruling addresses land acquired after 1st July 2000)
Unfortunately the ATO's own website is so poorly worded that may people read it too literally and believe that if you didn't buy the property under the MS then it wont apply to sales. WRONG.
Read this link and final paragraph. Its vague.
https://www.ato.gov.au/general/property/in-detail/gst/gst-and-the-margin-scheme/
s75-3(3) (read GSTR 2006/8 para 32) outlines the ineligible types of acquisitions. The first being a acquisition which included GST in the cost
and the margin scheme wasn't used. Did I emphasis this enough ?? This basically says three things:
1. If you acquired from someone who wasn't regd for GST you didn't pay GST and you can use the MS (provided you don't acquire from an associate etc under the other rules);
2. If you acquired from someone who did include GST but they used the margin scheme you can also use the margin scheme to sell;
3. If you acquired from someone who did include GST but they did NOT use the margin scheme you cant use the margin scheme.
Why this rule ?? Because the person in 3 can claim the GST they paid n the acquisition. You cant double dip benefits of the margin scheme.
It pays to use a tax adviser that is focussed on developers, property taxes and GST on property transactions to avoid these types of concerns. You are just burning profit if you overpay GST.
Question : Does the accountant believe the acquisition was another ineligible type of acquisition as described in para 32 ?? I suspect not.