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The Australian Tax Office has reported that many businesses which have purchased land under the "Margin Scheme" are mistakenly seeking to claim input tax credits for the GST they paid.
If you purchase real property under the margin scheme, you are not entitled to an input tax credit for the GST payable on the acquisition. However, you may be allowed input tax credits on any costs of improvements subsequently made to the real property, for example, if you are a developer.
A vendor of land may choose to apply the "Margin Scheme" in certain circumstances. Under the margin scheme the amount of GST payable on a taxable supply is 1/11 of the vendor's "margin". The margin is the amount by which the sale price exceeds the cost of the original acquisition of the land (or if the land was held at 1 July 2000, then the margin is the difference between the sale price and the market value at 1 July 2000).
Example
A property is valued at $80,000 as at 1 July 2000. Under the margin scheme, GST is only calculated on the difference between the 1 July 2000 valuation and final sales price. If the property is sold for $102,000, the margin is $22,000. The GST payable on this amount is 1/11th of $22,000, that is, $2,000 that would have to be remitted to the Australian Taxation Office. However, the purchaser is not entitled to an input tax credit for the $2,000 in GST whereas they would have been entitled to an input tax credit of $9,272.73 if the ordinary method of GST calculation had been used. When purchasing land, it is important to make sure that the contract sets out not only whether the price includes or excludes GST, but also how that GST will be calculated. If you want to claim input tax credits, the contract needs to state that the vendor can only use the margin scheme with your consent.
For further information about any issue raised in this article please contact Kim Evans on + 61 8 8210 1287 or e-mail kevans@normans.com.au
On 1 July this year a number of changes to the Retirement Villages Act 1987 and the corresponding regulations came into force. They came about as a result of consultation undertaken by the State Government throughout 2000 and 2001. The major effects of the changes are to:
In practice these changes will mean that administering authorities will need to change their operations in a number of ways. They will now have to:
If you administer a retirement village, these changes will affect you. For further information about any issue raised in this article please contact Adam Ludlow on + 61 8 8210 1276 or e-mailaludlow@normans.com.au.
ADVOC Asia, which Norman Waterhouse is a member of, has recently accepted a Beijing law firm, Jincheng Law Firm.
Mr Harry Lin, partner of Jincheng Law Firm, has informed us that there has been significant changes in property law in China. The Beijing Municipality has recently issued a regulation abolishing the distinction between domestic sales and foreign sales of property in Beijing. Up to now, for the purposes of sales, property (particularly residential property) in China has been divided into domestic sales and foreign sales. In order to qualify for foreign sales, the Foreign Sales Certificate must be obtained from the government department. In theory, foreign sales property has higher quality than domestic sales property. Therefore, the beauty of foreign sales is that the property can usually attract higher prices. Under this system foreigners cannot purchase property which has not been granted the Foreign Sales Certificate. The new regulation will abolish the foreign sales system and the property in Beijing can be sold to domestic citizens and foreign citizens.
Mr Lin informed us that this practice started on 1 September 2002 in Beijing. Mr Lin also informed us that the practice is likely to be adopted in other places in China eventually.
For further information about any issue raised in this article please contact Alice Le Messurier on + 61 8 8210 1296 or e-mail alemessurier@normans.com.au
Should you have any queries in relation to the Briefly, please contact:
John Wellington
Partner
Direct Line: 8210 1209
email: jwellington@normans.com.au
or
Peter Fisher
Special Counsel
Direct Line: 8210 1208
email: pfisher@normans.com.au
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