GST/Margin Scheme

[MTR]

Hi All
I am relatively new to developing and did not realise I needed to complete the GST Annexure form pertaining to Margin Scheme when purchasing my properties.

I spoke to accountant today regarding this and mentioned that if I am audited by ATO could have issues.
Is it too late, what are my options to sort this out??

THanks
MTR

 

[MTR]

Settlement agent said this does not apply on purchase of resi/deve property.
Have left a message with my accountant, perhaps there are wires crossed here, not sure will advise as soon as I find out.

 

[MTR]

ATO on this

https://www.ato.gov.au/Print-publications/GST-and-the-margin-scheme/?anchor=deciding#deciding

Here is a link on this

 

[Asheam]

Hey MTR

Off the top of my head the margin scheme will not apply if you have purchased the land from a mum/dad owner / investor as they generally would not be registered for gst in the first instance hence no margin to work with? (Short non accounting answer typed on my phone)

 

[Terry_w]

I think you have to apply the margin scheme at purchase - needs to be taken into account in the purchase contract. In the NSW contract for the sale of land there is a box you can tick to apply it.

 

[Paul@PFI]

BOTH seller and buyer must contract for the Margin Scheme AND be an eligible property.

 

[g.field13]

sorry to hijack old thread but my scenario is
bought site of lady she didn't apply the margin scheme to me for sale of land 2013

I build duplex on site
2015
sell both units at sale contract can I apply the margin scheme to the purchasers of the my new units
thanks indvance

 

[Paul@PFI]

Hi All
I am relatively new to developing and did not realise I needed to complete the GST Annexure form pertaining to Margin Scheme when purchasing my properties.

I spoke to accountant today regarding this and mentioned that if I am audited by ATO could have issues.
Is it too late, what are my options to sort this out??

THanks
MTR

If you acquired land under the margin scheme you cant claim any GST on it if you are a developer. (Reason is the GST is not 1/11th so its not a creditable acquisition. Other reason is you wouldn't have a tax invoice showing 1/11th anyway) Land doesn't normally get sold under the margin scheme (very unorthodox but can occur with a new development) and existing resi wont be subject to GST.

The margin scheme problems are more prevalent with commercial property or when new resi is being sold by a developer. I don't quite see what your concern is.

 

[Paul@PFI]

sorry to hijack old thread but my scenario is
bought site of lady she didn't apply the margin scheme to me for sale of land 2013

I build duplex on site
2015
sell both units at sale contract can I apply the margin scheme to the purchasers of the my new units
thanks indvance

Time for personal tax advice. Quick answer is "Yes. Most likely"....However if you have already issued contracts that don't use the MS then you cant. You and the buyers must both agree to use the margin scheme. Its really the vendor who makes the choice and the contract is how its done. You cant decide later !

 

[g.field13]

thanks paul
I have paid my current accountant money for this information and a projected tax and gst costs etc
but she seems to think that I cant apply the margin scheme

but I was under the impression that
we bought house off lady no margin scheme applied to us
then we knocked down rebuild a duplex
now we are selling our units and want to apply the margin scheme for a saving of 35,000 roughly over each unit
ta

 

[g.field13]

we havnt had contracts drawn up yet as im waiting on clarification on this first
but we go to auction in about 3 weeks so Im trying to sort out whether I can apply it or not
ta

 

[Ausprop]

but she seems to think that I cant apply the margin scheme

any particular reason or she just seems to think it?

 

[g.field13]

just waiting to hear back from her
in the mean time I was trying to source my own info to cross reference with you guys on the forum

 

[Foxy Moron]

I'll agree with Paul's general advice. Maybe your accountant is confused about the circumstances where the Margin Scheme can (and can't) be applied. You did tell her about the house you knocked down didn't you, else she might think you bought just land from a registered vendor ? If you purchased an existing residential premises from the lady then that's usually ok.
Tell her to google 'Using the Margin Scheme when Selling Property' and click on the second heading. The advice from the ATO is quite clear on this point.

 

[g.field13]

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
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.

Attention
Certain requirements have to be met for you to use the margin scheme. These requirements vary depending on when you bought the property and when you are selling the property.
End of attention
In terms of the purchase you made, requirements vary depending on whether you purchased your property:
before 1 July 2000
on or after 1 July 2000
on or after 9 December 2008.

In terms of the sale you made or make, the requirements vary depending on whether you make the sale:
on or after 17 March 2005
on or after 29 June 2005.



it says here that I can only apply the margin scheme if it has been applied to me
the lady didn't apply it to me when I purchased it as an existing old shack
then we knocked it down and built duplex
does it change when you build a new product

 

[Paul@PFI]

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.

 

[g.field13]

thanks paul I will contact you
thanks peeps for the help
ta