When selling property registered for GST, the margin scheme can be used as an alternative way to work out the GST payable on a concessional basis.
Where the scheme is applied, GST is paid for one-eleventh of the margin of the sale rather than one-eleventh of the sale price. The margin scheme calculates GST on the increase in value since 1 July 2000, if the property was acquired before 1 July 2000; or the difference between the purchase price and the sale price, if the property was acquired after 1 July 2000.
The eligibility requirements for the scheme include the following:
- you are registered for GST (or required to be registered for GST)
- you are selling property in the course of your enterprise and GST applies to the sale
- the property is acquired before 1 July 2000, or
- the property is acquired after 1 July 2000 and the person who sold the property met one of the following:
– sold the property using the margin scheme
– sold the property as part of a GST- free going concern
– sold the property as GST-free farmland
– was not registered or required to be registered for GST
The scheme is not applicable if you are selling the property that you:
- purchased as a taxable sale and the GST on the sale was not calculated under the margin scheme
- inherited it from a person who could not use the margin scheme
- obtained it from a member of the same GST group who cannot use the margin scheme
- obtained it, as a participant in a GST joint venture, from the joint venture operator who cannot use the margin scheme
Those intending to use the margin scheme must have a written agreement between the purchaser and the seller that states the sale has been made under the margin scheme. The agreement must be included on or prior to settlement to access the scheme.
When calculating the margin or when the supply is ineligible for the margin scheme, errors can be made. Margin prices should not include stamp duty, costs for developing the property or legal fees. In some situations, an approved valuation method to assess the market value of the property may be required as specific rules apply. Those who wish to use the margin scheme as an alternative way to determine the GST payable should seek professional financial advice.