GST Q&A – Acquiring property without applying the margin scheme

What happens where the vendor wants to apply the margin scheme, but the purchaser doesn’t?

Question

We are a local government entity and are purchasing a private property in order to develop it into a park.

The vendor is requesting GST under the margin scheme, but as we won’t be selling the property this is of no benefit.

We would miss out on $250k of input tax credits if this was the case. I’m no expert on GST with property sales, can you please advise?

Answer

Based on the information in your question, the reference to GST credits of $250K indicates you are buying the property for $2.5m.

If the vendor is looking to apply the margin scheme, this means the supply is a taxable supply. We confirm that an acquisition under the margin scheme would result in the Purchaser not being able to claim a GST credit. (Section 75-20 of the GST law expressly states that an acquisition is not a creditable acquisition if the supply was a taxable supply under the margin scheme.)

The margin scheme only applies if  the vendor (the supplier) and the purchaser (the recipient) agree in writing that the margin scheme is to apply. Therefore, if Council as the purchaser does not want the margin scheme to apply then it would need to ensure that there was no agreement in writing applying the margin scheme. As contracts for sale of land usually include clauses dealing with this agreement to apply the margin scheme, you would need to ensure that such clauses are either removed or amend the contract so that it is clear that the margin scheme is not triggered.

Commercially, where the margin scheme does not apply, the general position is that the supply would remain a taxable supply. In such circumstances the vendor and purchaser would ordinarily agree whether the price is inclusive or exclusive of GST. There are then also tax invoice requirements to be met so the purchaser knows the amount of GST available as a GST credit.

This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.