Working out the margin and GST payable
Certain requirements have to be met for you to use the margin scheme. These requirements vary depending on when you bought the property and when you are selling the property.
In terms of the purchase you made, requirements vary depending on whether you purchased your property:
In terms of the sale you made or make, the requirements vary depending on whether you make the sale:
You can use the GST property tool to assist you with your calculations.
Selling property you purchased before 1 July 2000
If you are selling property under the margin scheme that you originally purchased, or held an interest in, before 1 July 2000, you can choose to pay the GST on the difference (that is, the margin) between either the sale price and the:
Example 4: calculating the consideration and valuation methods
Tom is registered for GST and is carrying on a business of leasing commercial property. Tom bought one of his commercial properties in 1989 for $50,000. He sells this commercial property in 2003 for $105,000 using the margin scheme. If Tom applies the consideration method to calculate his GST liability, the margin is $55,000 ($105,000 - $50,000). Tom’s GST liability is 1/11th of this amount, which is $5,000.
However, if Tom decides to use the valuation method and obtains a market valuation (approved) of the property as at 1 July 2000 and the property is valued as $61,000, then the margin is $44,000 ($105,000 - $61,000). Tom’s GST liability would then be 1/11th of this amount, which is $4,000.
End of example
- GSTR 2006/7 Goods and services tax: how the margin scheme applies to a supply of real property made on or after 1 December 2005 that was acquired or held before 1 July 2000
- GSTR 2000/21 Goods and services tax: the margin scheme for supplies of real property held prior to 1 July 2000
Selling property you purchased on or after 1 July 2000
If you are selling property under the margin scheme and you originally purchased or held an interest in it on or after 1 July 2000, you:
- must use the consideration method, that is, you must pay the GST on the difference (margin) between the sale price and the price you paid when you purchased the property
- cannot use the valuation method.
Example 5: using the consideration method
John is registered for GST and is carrying on an enterprise of property development. He buys vacant land from Jenny, who is not registered for GST, for $100,000 on 25 September 2007. John improves the property with roads and other services and sells it to George for $210,000 on 2 October 2008. Then, the margin is $210,000 - $100,000 = $110,000. John must pay 1/11th of the margin, that is, $10,000, as GST.
End of example
Selling property on or after 17 March 2005
Eligibility to use the margin scheme changed for sales of property made from 17 March 2005 onwards. This means you cannot use the margin scheme if you:
- purchased the property as fully taxable and the margin scheme was not used
- inherited the property from a person who could not use the margin scheme
- obtained the property from a member of the same GST group who could not use the margin scheme
- obtained the property as a participant in a GST joint venture, from the joint venture operator who could not use the margin scheme.
Selling property on or after 29 June 2005
Sales of property using the margin scheme that are made from 29 June 2005 onwards require a written agreement between the seller and purchaser to use the margin scheme.
As a seller you must agree with the purchaser in writing to sell the property under the margin scheme, before the settlement date. Prior to the 29 June 2005 there was no requirement to agree in writing with the purchaser to use the margin scheme, but records must be kept that indicate you made a choice to sell the property using the margin scheme.
Selling property you purchased on or after 9 December 2008
If you are selling property under the margin scheme that you originally purchased, or entered into a contract to purchase, after 9 December 2008, in some circumstances there may be some changes to your eligibility to use the margin scheme and the way your margin is calculated.
You cannot use the margin scheme if the entity you purchased the property from was not eligible to use the margin scheme and the property was purchased:
- as part of a GST-free going concern
- as GST-free farm land
- from an associate for no consideration (no payment).
If the entity you purchased the property from was eligible to use the margin scheme and you purchased the property through one of the above, you must include the value you and the previous seller added to the property when you calculate the margin.
Property you purchased as a mixed supply
If the property you are selling is a mixed supply, that is, partly input-taxed or GST-free and partly taxable, you can apply the margin scheme to the taxable part of the sale.
Working out the purchase price for subdivided land
You may use any reasonable method of apportionment to work out the proportion of the purchase price for a subdivided allotment or stratum title unit.
If you purchase land and subdivide it, or build strata title units on it and later apply the margin scheme, the margin is the selling price less the corresponding portion of the price you paid for the property.
Example 7: working out the margin on subdivided land or stratum title units
Josephine is a GST registered property developer. She purchases a 2,000 square metre block of land for $240,000 from a private individual that was not required to be registered for GST. The block is of equal value per square metre. She subdivides the block into two allotments of 600 square metres each, and one allotment of 800 square metres.
Josephine decides to use an area basis to work out the purchase price of the subdivided allotments. The purchase price for each of the 600 square metre allotments was $72,000 (600/2,000 x $240,000), and the purchase price of the 800 square metre allotment is $96,000 (800/2,000 x $240,000).
If Josephine sells the 800 square metre allotment for $140,000, she must pay $4,000 GST on the sale of this allotment, that is, the selling price minus the purchase price of the property divided by eleven, that is ($140,000 - $96,000) x 1/11th.
End of example
If the purchase price is the same as, or more than the selling price of the property, you do not have a margin so you do not have to pay GST on the sale.
- GSTR 2006/8 Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000 - refer to paragraphs 58–68.