The margin scheme is one method that can be used (if certain
requirements are satisfied) to calculate the GST liability on the
sale of real property. It is typically used by residential property
developers for the sale of new residential premises.
There are two methods that can be used to calculate the GST
liability under the margin scheme. These are:
The valuation method - which can only be used in certain
circumstances, including when the property was acquired before 1
July 2000; and
The consideration method - for property purchased after 1 July
Since the introduction of the GST and the margin scheme, the
main area of contention and audit activity has involved valuation
issues. Thankfully, 12 years on, the Australian Taxation Office
(ATO) has released some guidance.
New guidance on the valuation method
The ATO has recently released guidance which specifically
addresses common issues identified with non-complying valuations.
These issues are relevant for the sale of real property as the
margin scheme provisions require that all valuations are prepared
by professional valuers in order to support the market value of the
property used for the purposes of the calculation of the GST on the
In particular, the ATO, together with both the Australian
Property Institute and Australian Valuations Office (AVO), hold the
view that a number of margin scheme related property valuations are
falling "outside an acceptable range [and that] the ultimate
valuation is higher than it should be resulting in a lower margin
and less GST payable".
The following is a summary of the issues identified by the ATO
and its view on these issues.
The burden of proof to substantiate any valuation is the sole
responsibility of the seller/supplier of the property. Whilst the
valuation principles above are only a guide, they should be
considered during the valuation process as these will be key areas
that will be considered by the ATO/AVO during a review.
It is imperative that a reputable and qualified valuer be
engaged to undertake the valuation. If the valuer's assumptions
and conclusions are not sustainable or reasonable, the ATO/AVO may
not consider the valuation to be a complying professional
valuation. The valuer may also be considered not to have met the
standard of care required of a professional valuer.
In light of the above, we recommend that any valuations
previously received are reviewed to ensure that they are complying
It is also imperative that future instructions to valuers
address all of the areas of concern for the ATO/AVO so as to ensure
that all new valuations obtained are complying valuations. When
instructing valuers, it is important that they also understand the
requirements that their valuations must comply with, including the
requirements contained in the GST law, as well as GST rulings and
determinations issued by the ATO.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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