When can you apply the 'Margin Scheme'?

Property Law: 23 March 2019

The Tax Laws Amendment (2008 Measures No 5) Act 2008 significantly impacted on the operation of the margin scheme. In particular, the changes concerned supplies of property that was previously supplied GST-free due to going concern concessions or farm land concessions.

1. If you are making a supply of real property and you and the recipient agree in writing before making the supply that the margin scheme is to apply, then the margin scheme may apply.  The agreement to apply the margin scheme cannot be revoked after settlement (see ATO ID 2010/83).
2. Applying the margin scheme will be permitted unless:
   • you acquired the entirety of your interest in the property through a supply that was ineligible for the margin scheme; or
   • the supply by you is ineligible for the margin scheme.
3. Section 75-5 (3) lists a number of circumstances in which a supply is ineligible for the margin scheme, including if:
   • it is a taxable supply on which GST was worked out without applying the margin scheme;
   • you acquired the property interest by inheriting it from a deceased person and the deceased person had acquired all of it through a supply that was ineligible for the margin scheme;
   • you acquired the interest GST-free as a going concern or as farm land and the supplying entity:
     • was registered (or required to be registered); and
     • acquired the interest through a taxable supply on which GST was worked out without applying the margin scheme;
   • (in some circumstances) if a prior supply was ineligible for the margin scheme and you acquire the interest from:
     • a member of a GST Group of which you are also a member; or
     • the operator of a joint venture in which you are a participant; or
     • an "associate.

In the 2010 budget, the government announced its intention to clarify and simplify the margin scheme provisions of the GST Act with effect from 1 July 2012.

With Kate Oaten