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  • Applying the margin scheme correctly

    The margin scheme reduces the amount of GST that would normally be payable on sales of new property. It is not an automatic concession and a sale must be eligible for it to be applied.

    Use the information here to help your clients apply the margin scheme correctly.

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    Eligibility to use the margin scheme

    Eligibility to use the margin scheme should be determined before a property is initially offered for sale.

    The margin scheme can be applied on subsequent property sales, depending on:

    • the original date of purchase
    • how GST was applied at that time.

    Property purchases prior to 1 July 2000 are eligible as the property had not been subject to GST previously.

    Property purchases after 1 July 2000 may only apply the scheme to a subsequent sale when one of the following applies:

    • the original seller of the property was not registered for GST
    • the property was purchased as an existing residential premise
    • the original seller sold the property as a GST-free supply (for example, a going concern or farmland) and was eligible to use the margin scheme
    • the seller sold the property and applied the margin scheme at that time.

    Other considerations

    Limitations on the margin scheme apply in some situations, including:

    • inheritances
    • where the supplier is a member of a GST group
    • where the property is GST-free (going concern or farmland).

    In these situations, if the supplier was not eligible to use the margin scheme, your clients cannot use the scheme when they sell the property.

    New properties

    If the margin scheme is being applied to the sale of new residential properties, it must be agreed to by the seller and purchaser before the settlement date. This can be done by including the agreement in the sales contract.

    The sale of new residential properties may be subject to GST at settlement.

    Supplying new properties

    When clients are supplying new residential properties, you need to include details about the sale (or sales) when reporting GST on their activity statements at:

    • label G1 Total sales
    • label 1A GST on sales.

    Purchasing new properties

    When your clients purchase a new residential property and the margin scheme is part of the property transaction, they need to withhold 7% of the contract price (including GST and the market value of non-monetary consideration) and pay it to us at settlement.

      Last modified: 09 Oct 2019QC 60276