Tax Bites: Applying the GST margin scheme after acquiring property under the GST going concern exemption

It would not be uncommon for a taxpayer to seek to apply the GST margin scheme on the sale of a property after having originally purchased the property under a GST going concern exemption. For example, a property developer might acquire a property which is leased out. After the lease expires, the developer may then develop the property into new residential premises and seek to apply the GST margin scheme on its sale.

In advising the client on both their eligibility to apply the GST margin scheme and how the GST margin scheme is calculated in the above circumstances, a substantial amount of background information is first required – information which may in fact be difficult for the client to access.

In determining whether the GST margin scheme will actually be available to the transaction at all, the GST Act states if a taxpayer acquires a property as part of a GST going concern, the taxpayer will be prevented from subsequently applying the GST margin scheme on the sale of the property if the previous vendor originally acquired the property as an ordinary taxable supply. Therefore, where the taxpayer acquires a property as a GST going concern and subsequently seeks to apply the GST margin scheme on the sale of the property, details of how the previous vendor of the property originally acquired the property will first be required to be obtained.

Assuming it is determined that the taxpayer is eligible to apply the GST margin scheme on the sale of the property, the GST Act outlines how the “GST margin” is to be calculated when the property was acquired as part of a GST going concern. While the GST margin is usually calculated having regard to the amount paid by the taxpayer to purchase the property, the GST margin is calculated differently when the taxpayer acquired the property as a GST going concern.

Depending on the facts of the case and when the previous vendor originally acquired the property, the calculation of the GST margin could be calculated having regard to (i) the valuation of the property as at 30 June 2000; or (ii) the amount paid by the previous vendor to acquire the property; or (iii) the valuation of the property when the previous vendor of the property first registered for GST.

If you have any further questions, please do not hesitate to contact Tim Olynyk on (03) 9810 0700 or at t.olynyk@banksgroup.com.au.

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