The Government will ensure that the interactions between a number of provisions in the GST law do not allow real property transactions to be structured to reduce the GST liability. The GST provisions dealing with real property are intended to ensure that GST is payable on the value added to land once it enters the GST system. The margin scheme achieves this outcome by applying GST to the ‘margin’, that is, the difference between the purchase price paid by the seller and the price paid by the buyer. This new measure provides that, where the margin scheme is used after a GST free or non taxable supply, the value added by the registered entity which made that supply is included in determining the GST subsequently payable under the margin scheme. The measure will also strengthen the GST anti avoidance provisions to ensure that they can apply to contrived arrangements entered into to avoid GST.
As a consequence of this proposed measure, the Government will not proceed with a tax integrity measure previously announced in the 2005-06 Budget and then deferred in the 2006-07 Budget. This was an integrity measure designed to prevent the interaction of the margin scheme with the GST free going concern and the GST free farmland provisions from inappropriately reducing GST revenue. Instead, the Government has decided to introduce a better targeted integrity measure referred to above.
See Budget Paper No 2 pp 25-26