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  • Written agreement to use margin scheme

    Both the buyer and seller must agree in writing to apply the margin scheme if the contract for sale was made on or after 29 June 2005. The agreement to use the margin scheme must be reached by the time the property is supplied, usually at settlement.

    No written agreement between the seller and purchaser is needed if the sale was made either:

    • before 29 June 2005
    • on or after 29 June 2005 but you entered into a contract or granted rights or options over the property you are selling before 29 June 2005.

    There is no set format for a written agreement, but there must be a written statement which makes it clear that you and the purchaser have agreed to use the margin scheme on the sale, and clearly identifies the property being sold. This statement may form part of the sale contract, or it may be a separate document.

    If the purchaser agrees to allow the seller of the property the absolute discretion to apply the margin scheme, the seller must confirm in writing that the margin scheme has been applied on or before the settlement date.

    Example: Inadequate written agreement

    John lodges a subdivisional plan for Seaview Estate, consisting of 200 lots, that is approved by the local authority. John writes to his solicitor instructing that lots 1 to 50 will be sold using the margin scheme. The solicitor advises the buyers of lots 1 to 50 that the margin scheme will apply and draws up the sale contracts. The purchasers of lots 1 to 50 all agree in writing for the sale to be made under the margin scheme.

    The contract for sale for lots 1 to 50 contained the following clause:

    • the vendor and purchaser agree and acknowledge that the vendor shall be entitled absolute discretion to use the margin scheme in determining the GST that may be applicable to this transaction. This clause shall be deemed as being written consent to the application of the margin scheme.

    This clause is unlikely to meet the requirements of a written agreement as the purchaser is not aware whether the vendor has in fact applied the margin scheme to the sale. John would therefore need to provide some written evidence that the margin scheme applied to lots 1 to 50 before completion of the sale.

    End of example

    If you did not have a written agreement by the time the sale was made you may ask for permission to extend the time to have the agreement in writing.

    See also:

    • PS LA 2005/15 The Commissioner’s discretion to extend the time in which the agreement in writing must be made to apply the margin scheme – for sales of property made under contracts entered into on or after 29 June 2005
    • PS LA 2005/2 (GA) GST and time of choice to apply the margin scheme – for supplies made before 29 June 2005
      Last modified: 19 Jun 2018QC 18646