Relief for property developers - margin scheme back on the books!

Brady King Pty Ltd v Commissioner of Taxation [2008] FCAFC 118 (26 June 2008)

To the relief of property developers across Australia, the Full Federal Court has allowed the developer’s appeal in the Brady King case.

The decision sets aside the Federal Court decision in February 2008 which denied the margin scheme to developers where there has been a change in the legal title to the property between acquisition and sale.

Unusually both parties were unhappy with the original decision which was contrary to the Australian Taxation Office (ATO) position on the margin scheme since the inception of the GST on 1 July 2000.

The Full Federal Court has now held that the property supplied to the end purchaser is not required to be identical in legal terms to the property originally acquired. It found that:

• it was sufficient that the original owner of the property had acquired an ‘interest’ in the property when it purchased the land, and
• this enabled the margin scheme to be applied to the subsequent sale of the new apartments.

The Court held that the High Court’s recent decision in Commissioner of Taxation v Reliance Carpet Co Pty Limited (Reliance Carpet) was relevant. Reliance Carpet adopted the wide statutory definition of ‘real property’ to include ‘any interest or right over land.’ Accordingly, a legal interest in the apartments being sold need not have been acquired for the original owner of the property to use the valuation method and apply the margin scheme.

The Full Federal Court decision should allay the concerns of property developers, who may have otherwise been disallowed significant GST savings had the margin scheme not been available to them.

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