Recent Federal Court Decision On The Margin Scheme: A Warning To Developers

This week, a decision of the Federal Court has cast doubt over whether the margin scheme could ever apply to sales of subdivided land. The decision has caused as much consternation for the Commissioner of Taxation as it has for property developers. The Commissioner has responded swiftly with critical guidance for taxpayers.

However, if the taxpayer does not appeal the Court's decision, the Commissioner's interim guidance may be withdrawn, leaving the treatment of past, current and future transactions under the margin scheme at risk and in the hands of a legislative fix from the new Federal Government.

The Decision

The decision in Brady King Pty Ltd v Commissioner of Taxation involved the purchase of a property which was subsequently subdivided and sold as stratum units by the taxpayer. The initial purchase contract involved execution of the contract pre 1 July 2000 with exclusive possession