In recent months we have been contacted by the ATO in respect of margin scheme calculations for our clients when an activity statement has been lodged. They have asked for copies of the contract to confirm the margin scheme has been correctly stated. They have also asked for calculations that confirm the GST component when a refund is owed back.
Eligibility
The Margin scheme can be applied to the sale of properties including land, commercial or residential premises. The original purchase of the property in question cannot have any GST credits claimed or applied to be eligible.
There must also be an election made in the sale contract with both the buyer and seller agreeing on its application to the transaction. The selling entity of the property needs to be registered for GST to be eligible to apply the margin scheme to the contract.
Calculating the Margin
The profit margin is calculated as the difference between the property’s sale price and the property's purchase price. The margin does not include any development costs of the property that occurred between purchase date and selling date. These costs are claimed separately, and GST input tax credits can be claimed throughout the development process.
When the margin scheme is applied in the contract the buyer will be required to withhold 7% of the purchase price and pay this directly to the ATO. When the seller lodges their business activity statement this withholding amount is applied as a credit and any excess will be refunded to the selling entity.
The Margin Scheme is a beneficial provision that can assist property owners in managing their GST liabilities. Careful consideration and proper documentation are essential to ensure compliance and to maximise potential cashflow savings.
Changes to the Foreign Resident Capital Gains Withholding (FRCGW)
From 1 January 2025 there will be changes to the Foreign Resident Capital Gains Withholding (FRCGW) Regime.
There will no longer be a $750,000 threshold to avoid withholding from the purchase price of a real Australian property (TAP).
The withholding amount will also increase from 12.5% to 15% on any real property sold from 1 January 2025. If the seller is an Australian Tax Resident, they can provide an ATO Clearance Certificate to the purchaser that will prove they are a tax resident, and the withholding amount will not apply to the transaction.
For More Information
If you would like more information regarding Margin schemes or Foreign Resident Capital Gains Withholding changes, please contact an Archer Gowland Redshaw adviser on (07) 3002 2699 | info@agredshaw.com.au
