Australia: GST – Be Wary Of The Ever Shrinking Margin

Last Updated: 27 March 2008
Article by Thomas Sterling

GST is ever-present and (mostly) unavoidable. However, provided that certain conditions are met, GST on the sale of property can be reduced by calculating GST using the method known as the "margin method".

Developers often use the margin method when selling brand new residential property. By using the margin method, the GST on the supply of the brand new residential property will be less than if the ordinary method was employed. This increases the proportion of the price that the vendor retains and increases available profit.

On 18 February 2008, the Federal Court delivered a judgment in Brady King Pty Ltd v Commissioner of Taxation (Brady King) regarding the application of the margin method. The Court adopted an interpretation drastically limiting the applicability of the margin method in a manner contrary to the practice adopted by the ATO, developers and their lawyers since the introduction of GST in 2000.

The Position Prior To Brady King

Prior to the recent decision, the position was that the margin method could be applied where the title details of the property changed between the date of the acquisition of development land and the sale of subdivided land or buildings. This occurs in most residential development projects as they generally involve changing title by subdividing land or strata subdividing a newly constructed building.

Example 1

Assume a developer acquires land using the margin method for $10,000,000 (inclusive of GST). The developer then constructs 100 brand new residential units on the land. In order to sell the units, the land is strata-subdivided into 100 units. Each unit is sold for $400,000 (inclusive of GST).

The original title to the property acquired by the developer no longer exists because after subdivision into 100 individual strata units the building has a new strata title.

It was generally thought that the margin method could still be applied on the sale of the strata units. The GST margin on the sale of each unit was calculated by adopting a "fair and reasonable" method of apportionment of the original acquisition price.

Where each unit is assumed to be of equal value, a fair and reasonable apportionment would be an acquisition price of $100,000 per unit (inclusive of GST). The GST, using the margin method for each unit, would be $27,273 (being 1/11th of the difference between the sale price of $400,000 and the apportioned purchase price of $100,000).

In this case, of the $40,000,000 received from purchasers, the developer remits $2,727,300 in GST to the ATO and retains the balance, being $37,272,700.

Brady King

In Brady King, the Court held that it was no longer possible to apply the margin method on sales of land where the title to the property sold differs from the title to the property acquired. The reason is that the property at the time the margin method supply occurs is not the same property (in a judicial sense) as the property originally acquired by the vendor.


The impact of the decision is that the margin method can no longer be used whenever the title to the property sold is different to the title of the property originally acquired. This has the potential to affect the sale of property whenever a subdivision, consolidation or redefinition of title occurs. Where feasibilities have been prepared on the assumption of the margin method being applied, this could have serious consequences for developers and their financiers.

The ATO has issued public rulings indicating that where the real property that you buy differs from the property that you eventually sell (e.g. where you subdivide land or construct stratum units), the margin scheme applies to the interest created by registering the subdivision or stratum unit and the consideration for that new interest (when calculating the margin) is the corresponding proportion of the consideration provided for the original land or premises.

The ATO has not withdrawn these public rulings and their statement in response to the Brady King decision indicates that they have no immediate intention to change their current approach. Taxpayers are generally protected where they rely upon current ATO public rulings. However, any protection offered by the rulings will be lost if the ATO withdraws them before completion of the relevant sale contracts and this should be factored into future feasibility studies.

Example 2

Using the facts set out in example 1, if because of the Brady King decision the 100 brand new residential units cannot be sold using the margin method (because the property has been strata subdivided), the only option open to the developer is to sell the units using the ordinary method.

The GST inclusive sale price for the 100 units is $40,000,000. The developer remits 1/11th of the price being $3,636,363 as GST to the ATO and retains the balance, being $36,363,637.

The difference in the GST component of the price between the two methods is $909,063. This means that with the margin method no longer being available to the developer, in this example, the developer has $909,063 less profit at the end of the project.


Although the ATO was successful in the Brady King case (but not on the grounds submitted by the Commissioner), it has issued a decision impact statement which confirms that the judgment was not consistent with their submissions or their long-held views and, although they are still considering their position, they have indicated that the ATO will continue to adopt their existing practices until the decision is confirmed or overturned (if the taxpayer appeals). The ATO cannot appeal as it was successful in the case. An appeal from the decision in Brady King would need to be filed by the taxpayer by 10 March 2008.

If you have any questions about the applicability of the margin method to your project please contact our office for advice on your particular situation.

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.

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)
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.