In a recent Administrative Review Tribunal (ART) case: ZKSM and FCT [2025] ARTA 1298, ART, Abood GM, 11 August 2025, a property developer failed to defend its’ calculation of its GST liability under the margin scheme, resulting in a $1.047m increase in GST payable.
This case concerned ZKSM’s (“the Developer”) calculation of the GST payable on their sales of residential properties under the margin scheme concession provided by Division 75 of the GST Act. The margin scheme allows entities to calculate their GST liability as 1/11th of the difference between their acquisition costs from the sale price.
In this instance, the Developer, who engaged in large scale englobo land development, had acquired land from the Australian Capital Territory (ACT) authority (the SLA) by entering into development lease arrangements with SLA which granted the Developer a 99 year lease of land that was then entitled to develop and sell.
The acquisition cost of the land comprised of a significant monetary payment and a non-monetary component, being the “development services” to be provided by the Developer. As required by s 75-10(2) and s 9 -75(1)(b) of the GST Act, the Developer was required to obtain valuations of the acquired land from a qualified valuer. The Developer used this valuation to calculate it’s GST liability on the sale of the individual residential property it sold. The Developer also issued a series of tax invoices to the SLA for the ‘development services” which included a GST component amounting to $16.3m.
The principal issues in dispute were:
- whether the Developer was entitled to rely upon the valuations of land it obtained in calculating the non-monetary consideration for inclusion as its acquisition cost for the land;
- whether the ATO was required to accept the Developer’s approach to identifying the GST inclusive market value of the non-monetary consideration due to the Developer’s reliance on various private and public rulings made by the Commissioner. (Notably a private ruling obtained by the Developer from the Commissioner did not specifically address the question of the value of non-monetary consideration); and
- whether the Developer was required to reduce the value of the non-monetary consideration for its acquisition of the land to take into account the additional amount of $16.3m paid by the SLA in respect of the Development Services.
The ATO won on all of the issues in dispute. Notably, the ART held that the Developer had not discharged its burden of proof to establish that the amended assessments issued by the ATO were excessive.
This case serves as a timely reminder of the importance of carefully drafting private ruling requests and objections to consider all possible GST risk exposures in a taxpayer’s position. Additionally, this case shows that as with other taxes, a taxpayer must not only demonstrate that their approach is correct and based on accepted ATO guidelines and case law, they also have the onus of proving why the ATO’s approach is not correct. This is often a fine line and one that your developer clients may not appreciate is particularly nuanced. As tax advisors, it is up to us to provide examples such as this case where it is imperative that these matters be considered prudent from the onset.
If you would like to discuss property development tax issues, please contact Mimi Ngo.