Using the margin scheme
The amount of GST you must normally pay on a property sale is equal to one-eleventh of the total sale price.
When you use the margin scheme, the amount of GST you must pay on a property sale is equal to one-eleventh of the margin.
Your margin is generally the difference between the sale price and one of the following:
- the amount you paid for the property
- the value of the property provided in an approved valuation of the property (if certain conditions are satisfied).
Your margin is not:
- the profit margin; unlike an accounting profit margin, the margin on the sale does not take into account costs you incurred to develop the new property or subdivide the land
- the selling price minus a valuation of the property for a property purchased after 1 July 2000
- worked out the same way as a capital gain – it is possible that you still pay GST under the margin scheme when you have no capital gain for income tax purposes.
Using the margin scheme when you sell property
If you sell property as part of your business and you are registered for GST, you may be able to use the margin scheme to work out how much GST you must pay.
Whether you can use the margin scheme depends on how and when you first purchased your property. For GST purposes the date when settlement occurs will be the date that you have purchased the property.
You can use the margin scheme if either:
- you purchased the property before 1 July 2000 (the start of GST), or
- you purchased the property after 1 July 2000 from someone who:
- was not registered or required to be registered for GST
- sold you existing residential premises
- sold the property to you as part of a GST-free going concern or GST -free farmland
- sold you the property using the margin scheme.
You cannot use the margin scheme if when you first purchased the property the sale to you was fully taxable and the margin scheme was not used. In this case the amount of GST included in the price you paid is one-eleventh of the full purchase price.
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 date, requirements vary depending on whether you purchased your property:
- before 1 July 2000
- on or after 1 July 2000
- on or after 9 December 2008.
In terms of selling, the requirements vary depending on whether you make the sale:
- on or after 17 March 2005
- on or after 29 June 2005.
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