Using the margin scheme

When you sell property using the margin scheme, the GST you must pay is one-eleventh of the 'margin' rather than one-eleventh of the sale price.

Errors can often be made when calculating the margin on the sale or when the supply is ineligible for the margin scheme.

Generally, you can use the margin scheme if the following applies:

  • you are registered for GST (or required to be registered for GST)
  • you are selling the property in the course of your enterprise and GST applies to the sale (that is, a taxable sale)
  • you have a written agreement with the purchaser to apply the margin scheme to the sale.

You cannot use the margin scheme if you are selling a property that you either:

  • purchased as a taxable sale and the GST on the sale to you was not calculated under the margin scheme
  • inherited from a person who could not use the margin scheme
  • obtained from a member of the same GST group who cannot use the margin scheme
  • obtained, as a participant in a GST joint venture, from the joint venture operator who cannot use the margin scheme.

When using the margin scheme to work out the amount of GST payable on a property sale, you must:

  • be eligible to use the margin scheme
  • work out the correct margin and pay the correct amount of GST on the margin
  • account for GST at the market value when you sell property for less than market value to associates.

On 9 December 2008, legislation was passed that changed the way the margin scheme works when you sell property you purchased in any of the following ways:

  • as part of a GST-free going concern
  • as GST-free farmland
  • as an associate for no payment.

If you are eligible to use the margin scheme to work out your GST liability when you sell a property you purchased in one of the above ways, you:

  • must include the value you and the previous seller added
  • cannot use the margin scheme if, broadly speaking, the previous seller could not use the margin scheme.

If you intend to use the margin scheme in these situations, you must work out:

  • if you can use the margin scheme - you do this by checking if the previous seller was entitled to GST credits
  • the amount of GST you must pay under the margin scheme.

The change does not normally apply to property you purchased under contracts entered into before 9 December 2008.

You do not include stamp duty when working out the selling price of property to calculate the margin.

In some circumstances, a market value of the property is required to work out the margin. There are specific rules about when this is required and the form and content of the valuation to make it valid.

When selling property under the margin scheme you must make sure you have a written agreement between you and the purchaser that states the sale has been made under the margin scheme. This can be added to the sales contract or done separately in writing prior to settlement.

If this agreement is not made on or before the sale has occurred, or within a later period we allow, you cannot apply the margin scheme and you must report the GST on the full sale price of the property.

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    Last modified: 05 Jul 2016QC 21948