Australia: Recent GST developments affecting the property sector

From the Ground Up (Built Environment Australia)
Last Updated: 8 October 2011
Article by Jonathan Ackerman

Goods and Services Tax (GST) is a particularly complex issue for the property sector. As well as being a highly technical area, GST has a significant financial impact on property projects and mistakes can be costly. There have been a number of recent GST developments that have a significant impact on the property sector and this article briefly highlights some of these, including:

  • amendments to overcome the Gloxinia court decision
  • ATO backs down on margin scheme refunds
  • retirement village developments
  • replacing the going concern/farm land exemptions with a reverse charge mechanism
  • redrafting the margin scheme provisions
  • other developments.

Taxpayers need to be aware of these developments, since they create risks that need to be understood and proactively managed.

Redrafting the margin scheme provisions

The margin scheme is a method of calculating GST and is primarily used for residential property sales. The Government has made numerous amendments to the margin scheme since GST commenced (including substantive amendments in 2005 and 2008), with the consequence that it is now one of the most complex aspects of the GST law to apply. Each set of amendments generally provides for transitional relief and therefore different versions of the margin scheme rules apply depending on when property was acquired or sold.

In this context, the Government has announced that it will redraft the margin scheme provisions 'to give prominence to the core provisions with exceptions set out separately and to insert objects clauses for the key provisions so that the intention is clear'. It will also implement a minor technical amendment concerning subdivided land. These changes are intended to apply from 1 July 2012.

While the redrafting is not intended to significantly change the way the margin scheme operates, this exercise will involve restructuring and rewording the various margin scheme provisions. No exposure draft legislation has been released to date, nevertheless, the amendments are unlikely to be purely cosmetic and will no doubt create new uncertainties, challenges and opportunities in the operation of the margin scheme.

ATO backs down on margin scheme refunds

Many taxpayers are not aware of the GST provision that gives the ATO a discretion not to pay GST refunds in certain circumstances (section 105-65 of Schedule 1 to the Taxation Administration Act 1953). A particularly contentious issue has been the ATO's view that it can use this provision to avoid paying margin scheme GST refunds. On 30 September 2011, the ATO reversed its position on this issue and now accepts that the provision should not apply to margin scheme refunds. This is a very good result for taxpayers.

For example, assume a developer purchased vacant land before 1 July 2000 on which it constructed a strata-titled residential apartment block. It applies the margin scheme to the sale of the individual apartments and calculates the margin scheme cost base of the vacant land by reference to a valuation of that land that it obtained. If the taxpayer subsequently determines that the valuation was too low, it has paid too much GST on the sale of the apartments and should be entitled to a GST refund. The ATO's view set out in public rulings has been that it does not need to pay the GST refund to the developer. Of course, if the developer underpaid GST on the sale of the apartments for some reason, the ATO is quick to demand the underpaid GST.

A recent Federal Court decision (International All Sports v Commissioner of Taxation [2011] FCA 824) raises doubt as to the ATO's interpretation and suggests that the ATO has no discretion to withhold margin scheme GST refunds. On 30 September 2011, the ATO issued a Decision Impact Statement (DIS), which sets out its view of the case. The DIS indicates that the provision should not apply to margin scheme refunds with the result that taxpayers are now entitled to claim such refunds. This is a very good result. Nevertheless, taxpayers should be aware of the possibility that the Federal Government will now make legislative amendments to ensure that the ATO has a discretion not to pay GST refunds in all relevant circumstances.

On a related note, it is becoming more common for taxpayers to include provisions in their GST clauses specifically dealing with GST refunds as a result of the ATO's position highlighted above.

Amendments to overcome the Gloxinia court decision

The first sale of new residential premises is intended to be subject to GST. Subsequent sales are intended to be input taxed (that is, not subject to GST, but the supplier is not able to claim GST credits on expenses related to the supply). In Commissioner of Taxation v Gloxinia Investments (Trustee) [2010] FCAFC 46, the Full Federal Court held that sales of newly constructed residential premises under development lease arrangements were input taxed supplies of residential premises.

The Government has announced proposed legislative amendments to overcome the effect of the Gloxinia decision and consequently released exposure draft legislation on 23 September 2011. In particular, the draft legislation ensures that sales of newly constructed residential premises under development lease arrangements will be taxable supplies of new residential premises. There are also a number of other related legislative amendments. Most of the amendments are effective from 27 January 2011 (the date of the Government's announcement). Transitional rules generally apply to protect taxpayers that applied the Gloxinia decision.

Taxpayers with development lease and similar arrangements should ensure they understand the impact of the amendments on their projects.

Retirement village developments

GST has been a particularly contentious issue for retirement villages and the subject of numerous disputes between the ATO and industry.

Earlier this year, the ATO issued GST public ruling GSTR 2011/1, which deals with GST issues regarding the sale of a retirement village tenanted under a 'loan-lease' arrangement. Contrary to earlier public GST rulings, the ruling decides that the consideration for the sale of a retirement village includes the resident loans (that is, the obligation of the purchaser to repay the resident loan to the resident is part of the consideration for the sale of the village). The effect of the ruling will be to significantly increase the GST liability on the sale of a taxable retirement village. The ruling also deals with the extent to which the owner/operator of a retirement village in these circumstances can claim GST credits on its expenses.

It is also noted that the ATO will shortly publish two GST draft rulings concerning the GST treatment of exit payments (including deferred management fees), accommodation bonds and residential care services in retirement villages.

Taxpayers involved in the retirement village industry need to ensure they understand the GST issues that arise in this complex area.

Replacing the going concern/farm land exemptions with a reverse charge mechanism

The going concern exemption allows the sale of tenanted property and the sale of a business that is executed by way of an asset sale to be treated as GST-free (that is, the sale is not subject to GST). Similarly, the sale of farm land that has been farmed for five years and is intended to be used for farming is GST-free. These exemptions are primarily used for cash flow and stamp duty savings.

The Government previously announced that the going concern and farm land exemptions are to be removed. These exemptions are intended to be replaced with an optional reverse charge mechanism. Normally, the vendor remits the GST on a taxable transaction. Under this mechanism, the parties can instead agree that the purchaser will be responsible for remitting GST on the transaction. Where the purchaser is entitled to claim a full input tax credit on the transaction, it will have a zero net GST liability. In addition, the definition of a going concern will be expanded so that it is easier to meet the criteria and there will be a carve-out for the sale of real property to be sold under the margin scheme.

The amendments were originally intended to commence on 1 July 2010, were deferred until 1 July 2011 and were recently deferred again. There is no announced start date for the proposal, although it is expected the amendments will commence some time in 2012 (the amendments commence on the first day of the first or a later quarterly tax period after royal assent of the amending legislation).

Where taxpayers have transactions that could potentially be covered by the new rules, they will need to seek advice as to how to treat their arrangements. Existing GST going concern and farm land clauses are unlikely to be sufficient to appropriately deal with the new reverse charge mechanism.

Other developments

There have been a number of relevant GST legislative amendments enacted or proposed, as follows:

  • amendments to the GST grouping and joint venture rules with effect from 1 July 2010, allowing entities to self-assess their eligibility to form a GST group or GST joint venture, to form or change a GST group or GST joint venture at any time during a tax period and allowing GST group members and joint venture participants to enter into indirect tax sharing agreements to limit their GST liabilities
  • proposed amendments to expand and simplify the GST grouping membership interest rules, including allowing a broader range of stapled entities to form a GST group (no specific start date announced at this stage)
  • proposed amendments to clarify the GST treatment of general law partnerships, tax law partnerships and bare trusts (no specific start date announced at this stage)
  • proposed amendments to simplify the GST change of use adjustment rules (no specific start date announced at this stage)
  • amendments to simplify the GST tax invoice rules (from 1 July 2010)
  • a new GST regime for the treatment of government taxes, fees and charges (from 1 July 2011). This particularly affects local councils and development charges
  • a new system that applies to GST rulings (from 1 July 2010)
  • the Financial Acquisition Threshold input tax credit test will be increased from $50,000 to $150,000.

There have been a number of recent GST cases concerning property issues, including cases on the going concern provisions, the margin scheme, classification of property as residential and commercial residential premises and enterprise issues. There are also a number of GST cases in the pipeline.

A number of recent GST rulings and determinations have been released by the ATO, including a draft GST ruling on residential premises and commercial residential premises (GSTR 2011/D2) and a draft GST Determination dealing with the farm land GST-free exemption (GST Determination GSTD 2011/D1).

The ATO has recently issued a number of useful publications for the property industry, including a margin scheme guide and a property contract and tax invoice GST checklist. The margin scheme guide in particular demonstrates how complex the margin scheme has become as a result of the legislative amendments in 2005 and 2008.

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.

DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.