Last week, the Tax Laws Amendment (2008 Measures No.5) Bill
2008 was introduced into parliament, making good on the
Government's promise to restrict the application of the margin
scheme on property sales that were previously acquired as a
GST-free supply of a going concern or farmland.
Broadly, the proposed amendments ensure that:
the GST payable on property sold under the margin scheme, after
being bought as a GST-free going concern or GST-free farmland, is
calculated by the value added to the property by the entity from
which it acquired the property. The GST-free transfer is
effectively ignored and the purchaser's 'cost base' for
the margin scheme will be calculated by reference to the previous
acquisition value of the property prior to the sale of the going
concern or farmland.
For example, if A owned a property at 1 July 2000 and sold it to B
as a going concern in December 2008, if B then sells the property
under the margin scheme in July 2009, the margin will be calculated
on the value at 1 July 2000, not the price paid to A in December
eligibility to use the margin scheme cannot be refreshed by
interposing a GST-free or non-taxable supply. If entity A is not
entitled to sell under the margin scheme, it cannot sell the
property to entity B as a going concern so as to 'refresh'
margin scheme eligibility for entity B
the GST anti-avoidance provisions are broadened to catch all
arrangements entered into with a sole or dominant purpose of
obtaining a GST benefit.
It is important to note these amendments will only apply
prospectively from the date of Royal Assent. Any GST-free going
concern or farmland sales which settle prior to Royal Assent will
not be affected by the new rules.
In future, purchasers who acquire property as a going concern or
farmland, and intend to resell under the margin scheme, will not
get a 'step up' in their margin scheme cost base. Further
information on the previous sale history will also be required by
purchasers of GST-free going concerns or farmland to confirm their
eligibility to apply the margin scheme and calculate the GST
payable under the new rules.
Therefore, any future sales or purchases of GST-free going
concerns or farmland should include clauses addressing the
availability of the margin scheme to the purchaser on any
Minter Ellison's GST team can help assess the impact of the
new rules and drafting relevant provisions in any affected sales
contracts. For further information please contact the authors of
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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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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