Full Federal Court Decision In Brady King Case Favours
The Full Federal Court in Brady King Pty Ltd v FCT has
overturned the initial contentious judgement made by the single
judge of the federal court earlier this year. The initial
judgement provided a detrimental result for developers as it
stipulated that there had to be a strict identity between the
property acquired and the property sold in order for the margin
scheme to apply. The full federal court supported a wider
application of the margin scheme provisions stating that it was
not essential that the property acquired should be identical to
the stratum units supplied. This is a positive result for
developers and is consistent with the common application of the
Draft GST Ruling 2008/D3
Margin scheme can be applied to partitioning
The Commissioner of Taxation has recently released a draft
ruling GSTR 2008/D3 which discusses the GST consequences of the
partitioning of real property by joint tenants or tenants in
common (co-owners). Among other things, the
ruling discusses whether the margin scheme provisions can be
applied to a transfer or conveyance of an interest in land
under a partition.
A partitioning agreement involves the division of co-owned
property through a contemporaneous transfer or conveyance by
each co-owner of their respective share in a part of the
The Commissioner is of the view that a supply as defined in
the GST Act arises under a partition by agreement or a court
ordered partition, but not under a mere subdivision of land.
Furthermore, the supply will be a taxable supply if it is made
in the course or furtherance of an enterprise of the co-owner.
The value of the consideration is the sum of the GST inclusive
market value of other co-owner's interests in the part
of the land acquired by a co-owner plus any equality money
received in respect of the partition. For example, in the
diagram above, the consideration A pays for Lot 1 is the GST
inclusive market value of Lot 2 plus any additional money paid
Furthermore, the ruling accepts that the margin scheme
provisions set out in section 75 of the GST Act can be applied
to a transfer or conveyance of an interest in land under a
partition. The margin scheme can only apply if there is a
'selling' of a freehold interest in land, a
stratum unit, or (granting) a long term lease. The Commissioner
takes a broad view of the term 'selling' and
states that for the purposes of Division 75, under a partition,
each co-owner is 'selling' their freehold
interests in land to be retained by the other co-owners.
Calculating the margin
The margin used to calculate GST liability for the supply of
property under a partition will vary depending on the
acquisition date of the property.
On or after 1 July 2000: the margin will be calculated
under section 75-10(2) (the amount by which the consideration
for supply of each co-owners interest exceeds the
consideration for the acquisition).
Before 1 July 2000: the margin will be calculated under
section 75-10(3) (the amount by which the consideration for
the supply for each co-owners interest exceeds the proportion
of the valuation of each co-owners interest at the prescribed
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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