Australian GST: margin scheme confusion

The recent Federal Court decision in Brady King Pty Ltd v Commissioner of Taxation [2008] FCA 81 represents a significant change to the traditional understanding of the operation of the margin scheme.

In particular, Middleton J decided that developers holding land on 1 July 2000 were unable to apply valuations under the margin scheme where strata titles have not issued at that date. This is contrary to the Tax Office’s public rulings.

Nevertheless, the Tax Office has issued a Decision Impact Statement indicating that it will not follow the decision at the present time. The decision is therefore likely to have little practical significance unless an appeal court ultimately upholds the decision.

This update details the two key issues that developers need to consider as a consequence of the decision.