Option Fees and the Margin Scheme

Option Fee and the Margin Scheme

The question as to the treatment of an Option Fee paid on the purchase of developable land and whether or not it forms part of the purchase price for Margin scheme calculations will need to be reviewed after the decision of the AAT in the Trustee for the Whitby Trust and the Commissioner of Taxation (2017) AATA 343 (20 March 2017).

The decision of the AAT supporting the ATO, was that an Option Fee paid separately but forming part of the purchase price contractually, will not form part of the contract cost base for the application of the Margin Scheme.

If you have any contract acquisitions utilising an Option Fee, where the Land Purchase Price was applied in calculating the Margin Scheme on the sale of developed lots there will need to be a review of the GST treatment applied to subsequent sales. There is a good chance that this decision will be appealed but in the meantime it is believed that the ATO will be quite likely to take advantage of this decision.

Link to the case – http://www.austlii.edu.au/au/cases/cth/AATA/2017/343.html