The consideration method
You can use the consideration method regardless of when you purchased the property you are selling.
The margin, using the consideration method, is the difference between the property's selling price and the original purchase price - that is the sale price less the purchase price equals the 'margin'.
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The sale price must include any settlement adjustments contained within the sales contract.
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When working out the margin using the consideration method, do not include any of the following as part of the purchase price:
- costs for developing the property
- legal fees
- any options you purchased
- stamp duty
- any other related purchase expenses.
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See 'Record keeping' for more information about what records you must keep when you sell your property using the margin scheme.
For more information on including settlement adjustments in the price for GST purposes, refer to GSTD 2006/3 Goods and services tax: are settlement adjustments taken into account to determine the consideration for the supply or acquisition of real property?
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Example 1: using the consideration method for property purchased on or after 1 July 2000
Bob is a GST registered builder. On 1 December 2002, Bob purchased a block of land for $150,000 from a vendor who was not registered for GST.
Bob paid $550 in conveyancing fees and $7,000 in stamp duty on the purchase of the land.
Bob later constructed a house on the land and sold the house and land for $315,000. Bob chose to use the margin scheme to work out the GST on the sale.
The margin for the sale of the house and land package is $165,000, the sale price of the property minus the purchase price of the property ($315,000 - $150,000).
The GST Bob must pay on the margin for the sale is $15,000 ($165,000 x 1/11th).
Bob has a tax invoice for the conveyancing fees and can claim a GST credit of $50 ($550 x 1/11th) in the tax period in which the purchase applies to.
Bob also holds tax invoices for $110,000 of business purchases he made when building the house. Bob is able to claim $10,000 in GST credits for these purchases.
Bob is not entitled to any GST credits on the stamp duty as GST is not included in the cost.
Example 2: using the consideration method for property purchased before 1 July 2000
James is registered for GST and reports GST quarterly.
On 15 June 2000 James purchases vacant land for $110,000 as part of his business. In May 2008, James contracts to sell the land for $220,000 and specifies in the contract that he will apply the margin scheme.
The margin for the sale of the land is $110,000, the sale price of the property minus the purchase price of the property ($220,000 - $110,000). The GST James must pay on the margin for the sale is $10,000 ($110,000 x 1/11th).
Because James chose to apply the margin scheme, the purchaser cannot claim a GST credit.
Sections within Methods you can use to work out the margin
Last Modified: Monday, 26 November 2012