ARTICLE · 27 MARCH 2008

GST – Be Wary Of The Ever Shrinking Margin

Gadens Lawyers

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GST is ever-present and (mostly) unavoidable. However, provided that certain conditions are met, GST on the sale of property can be reduced by calculating GST using the method known as the "margin method".

AustraliaTax

Thomas Sterling

GST is ever-present and (mostly) unavoidable. However, provided that certain conditions are met, GST on the sale of property can be reduced by calculating GST using the method known as the "margin method".

Developers often use the margin method when selling brand new residential property. By using the margin method, the GST on the supply of the brand new residential property will be less than if the ordinary method was employed. This increases the proportion of the price that the vendor retains and increases available profit.

On 18 February 2008, the Federal Court delivered a judgment in Brady King Pty Ltd v Commissioner of Taxation (Brady King) regarding the application of the margin method. The Court adopted an interpretation drastically limiting the applicability of the margin method in a manner contrary to the practice adopted by the ATO, developers and their lawyers since the introduction of

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