Deciding when to use the margin scheme and the written agreement
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 8: evidence of the seller’s choice to apply the margin scheme
John lodges a subdivisional plan for Seaview Estate comprising of 200 lots that is approved by the local authority. John writes to his solicitor instructing that lots 1 to 50 in Seaview Estate will be sold using the margin scheme. This is so the solicitor can advise the buyers of lots 1 to 50 that the margin scheme will apply and so it can be reflected in the sale contracts. The purchasers of lots 1 to 50 all agree in writing to allow the sale to be made under the margin scheme.
John would need to provide some written evidence that the margin scheme applied to lots 1 to 50 before completion of the sale if John’s contract contained a clause such as:
- 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.
The above 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.
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. To do this, write to us at:
Australian Taxation Office
PO Box 3524
ALBURY NSW 2640
You must show that:
- you meet all the requirements to apply the margin scheme, other than the requirement for the supplier and purchaser to have made the agreement in writing on or before the making of the supply, and
- you are not making the agreement to avoid your GST obligations.
We will write to you and tell you whether or not you may use the margin scheme on your sale.
Last modified: 24 Jun 2016QC 18646
- 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 under Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 - for sales of property made under contracts entered into on or after 29 June 2005