GST Margin Scheme - Surprises for Property Purchasers

Last updated June 2011

When the GST was introduced, one way for property developers to minimise the impact of the GST on their profits was to have their properties valued at 1 July 2000.

However, the Taxation Office became suspicious that some of these values were not correct.

Some property valuers were asked by the Taxation Office to supply details of clients for whom they undertook valuations in relation to the GST Margin Scheme.

The Taxation Office then reviewed many valuations of units sold off the plan prior to the GST being introduced, but which had not been completed as at 1 July 2000, to ensure their compliance with the GST legislation at that time.

They then challenged some of the valuations. The ATO took some disputes into the courts (and won). It is possible some valuers may have admitted to the ATO that their methodology was wrong during the course of the investigation, resulting in out of court settlements.

What resulted was the valuer’s client (the property seller) becoming exposed to underpaid GST, admin penalties and the general interest charge.

Some property sellers were clever and planned ahead by ensuring their sale contracts included a clause enabling them to recover any underpayment of GST from the purchaser. The purchaser will now get an unexpected bill. These amounts could be significant and the purchaser will be liable, regardless of how long ago settlement occurred.

How would you feel if you bought a house 5 years ago, and today received a request for another $20,000 from the seller?

What does this mean to you? It means that if buying or selling property you need to examine all the possible tax consequences of the transaction and to avoid possible legal action you need to get it right the first time.