• Calculating the margin

    Your margin is generally the difference between the sale price and one of the following:

    • the amount you paid for the property (using the consideration method)
    • the value of the property provided in an approved valuation of the property (using the valuation method).

    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.

    Example: calculating the margin

    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. Thus, 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

    If the circumstances for applying the margin scheme were not present for the entire time that you, or the previous owner, held the property you will need to take this into account in working out your margin.

    Previous owner's eligibility for the margin scheme

    The calculation of your margin will be affected by whether the previous owner was eligible for the margin scheme for the entire period of their ownership. To calculate your margin you need to know:

    • The exact date of purchase, if the previous owner purchased the property on or after 1 July 2000 and you choose to obtain an approved valuation or are required to work out the GST-inclusive market value.
    • If the previous owner was not registered or required to be registered at the time of purchase, or at 1 July 2000 - whichever is the latter - you will need to know the exact date they first registered or became required to be registered.
    • The amount paid by the previous owner to purchase the property if  
      • the previous owner purchased the property on or after 1 July 2000 and was registered or required to be registered for GST at this time, and
      • you choose not to obtain an approved valuation to work out your margin.
    • The GST-inclusive market value of the property as at 1 July 2000 if the property was purchased on or before this date or, if it was purchased after this date, the date the previous owner first became registered or required to be registered for GST, if  
      • the previous owner purchased the property before 1 July 2000, or purchased it on or after 1 July 2000 but was not registered or required to be registered for GST at the time of its purchase, and
      • you choose not to obtain an approved valuation to work out your margin.
    • The GST-inclusive market value of the property as at the date the previous owner purchased the property, if  
      • the previous owner purchased the property on or after 1 July 2000 and was registered or required to be registered for GST at the time of their purchase, and
      • the previous owner's purchase of the property was without payment.
    • If you and the previous owner are a member of the same GST group and there have been a number of intra-group supplies, you will need to know the date when the first GST group member purchased the property.
    • If the previous owner or, if applicable, the first group member purchased the property after 1 July 2000 and  
      • whether the previous owner or 'first group member' purchased the property from an associate of theirs
      • if they did not purchase the property from an associate - the payment for their purchase
      • if they did purchase the property from an associate - the GST-inclusive market value of the property at the time their associate sold the property to them.

    If the 2005 amendments apply

    The following table shows how certain groups are affected by the 2005 amendments to the margin scheme and how the margin is calculated.

    Affected groups

    How the law applies

    How margin is calculated

    (A) GST groups

    You purchased the property in question at a time when both you and the previous owner were members of the same GST group.

    On or after 1 July 2000, the previous owner had purchased the property from an entity that was not a member of the GST group.

    The previous owner was at that time, or subsequently became, a member of the GST group.

    The margin for your sale is the amount that the payment for your sale exceeds either:

    • the payment paid by the previous owner for their purchase, if the previous owner and the entity that sold them the property were not associates at that time
    • the GST-inclusive market value of the property at that time the previous owner purchased the property, if the entity and the previous owner were associates at that time.

     

    (B) GST groups

    You purchased the property in question at a time when both you and the previous owner were members of the same GST group.

    The previous owner had purchased the property before 1 July 2000.

    The margin for your sale is the amount that the payment for the sale exceeds an approved valuation of the property as at 1 July 2000.

    (C) GST joint ventures

    You purchased the property in question at a time when you were a participant in a GST joint venture and the previous owner was the joint venture operator.

    You purchased the property for consumption, use or sale in the course of activities that the joint venture was entered into.

    On or after 1 July 2000, the previous owner had purchased the property from a subsequent entity (whether or not that subsequent entity was the joint venture operator of the joint venture at the time of that purchase).

    The margin for your sale is the amount that the payment for your sale exceeds either:

    • the payment paid by the previous owner for their purchase, if the previous owner and the entity that sold the property were not associates at the time of the earlier supply
    • the GST-inclusive market value of the property at the time the previous owner purchased the property, if the two entities were associates at that time.

     

    (D) GST joint ventures

    You purchased the property in question at a time when you were a participant in a GST joint venture and the previous owner from whom you purchased the property was the joint venture operator of the GST joint venture.

    You purchased the property for consumption, use or sale in the course of activities that the joint venture was entered into.

    The previous owner had purchased the property before 1 July 2000.

    The margin for your sale is the amount that the payment for your sale exceeds an approved valuation of the property as at 1 July 2000.

    (E) Inherited property

    You inherited the property in question and none of the above sections (A) to (D) apply.

    The person you inherited the property from (the deceased) acquired it before 1 July 2000.

    The margin for your sale is the amount that the payment for your sale exceeds one of the following:

    • if you know what the deceased actually purchased the property for and you choose to use that amount to work out the margin for your sale - that amount
    • if immediately before the time at which you inherited the property, the deceased was not registered or required to be registered for GST - an approved valuation of the property as at the latest of:      
      • 1 July 2000
      • the day on which you inherited the property
      • the first day on which you registered or were required to be registered for GST
    • if immediately before the time at which you inherited the property, the deceased was registered or required to be registered for GST - an approved valuation of the property as at the latest of:      
      • 1 July 2000
      • the first day on which the deceased registered or was required to be registered for GST.

     

    (F) Inherited property

    You inherited the property in question and none of subsections (A) to (D) apply.

    The person you inherited the property from (the deceased) purchased the property on or after 1 July 2000.

    The margin for your sale is the amount that the payment for your sale exceeds one of the following:

    • if you know what amount the deceased actually purchased the property for and you choose to use that amount to work out the margin for your sale - that amount
    • an approved valuation of the property as at the day on which the deceased purchased the property. 

     

    (G) Associates

    Can include purchases through a sale made by a GST branch, or a non-profit sub-entity or a government entity (for more information, refer to section 75-11(8) of the GST Act).

    You purchased the property in question from an entity who was your associate at the time.

    None of the other sections above apply.

    The margin for your sale is the amount that the payment for your sale exceeds either:

    • an approved valuation of the property as at 1 July 2000 if you purchased the property before 1 July 2000
    • the GST-inclusive market value of the property at the time you purchased the property if you purchased the property on or after 1 July 2000.

     

    You must, for the purposes of working out your margin, treat the payment paid for the purchase of the property by you or a fellow group member as being equal to only the amount that has been paid if, at the time you sell property under the margin scheme one of the following applies:

    • you have not made full payment for the purchase of the property to the previous owner
    • if you are a member of a GST group and you purchased the property from a fellow member of the group and that fellow group member has not made full payment to the previous owner that they purchased the property from.

    Section 75-27 of the GST Act provides for a decreasing adjustment in the event the unpaid payment is later provided.

    In working out the margin for your sale of property to an associate, you must treat the payment for your sale as being equal to the GST-inclusive market value of the property at the time of the sale.

    The 'GST-inclusive market value' of the property means the market value without any discount for any amount of GST payable on the sale.

    If the 2008 amendments apply

    Under the 2008 amendments, the rules discussed for the 2005 amendments continue to apply.

    The 2008 amendments inserted two additional subsections into the GST Act that apply for sales of property purchased as, or as part of, a GST-free going concern or GST-free farm land or from an associate without payment. In effect, these rules require a seller to take into account the value added by the previous owner that sold you the property in working out its margin.

    The following table shows how you are affected by the 2008 amendments to the margin scheme and how the margin is calculated if you purchased property:

    • as part of a GST-free going concern
    • as GST-free farmland
    • from an associate without payment.

    If the previous owner purchased the property …

    The previous owner was …

    How is the margin calculated

    before 1 July 2000

    registered or required to be registered for GST on 1 July 2000

    The margin for your sale is the amount that the payment for your sale exceeds either:

    • an approved valuation of the property as at 1 July 2000
    • the GST-inclusive market value of the property as at 1 July 2000.

     

    before 1 July 2000

    not registered or required to be registered on 1 July 2000

    The margin for your sale is the amount that the payment for your sale exceeds either:

    • an approved valuation of the property as at the first day that the previous owner was registered or required to be registered for GST
    • the GST-inclusive market value of the property as at the first day that the previous owner was registered or required to be registered for GST.

     

    on or after 1 July 2000

    registered or required to be registered for GST at the time of its purchase

    The margin for your sale is the amount that the payment for your sale exceeds:

    • an approved valuation of the property as at the day that the previous owner purchased the property
    • the actual payment paid by the previous owner.

    Note: If the previous owner purchased the property in an arm's length transaction, it is generally expected that the value of the property, as at the date the previous owner purchased it, would equal the payment actually provided.

    If the previous owner's purchase was without payment - the GST-inclusive market value of the property as at the time of the previous owner's purchase.

    on or after 1 July 2000

    not registered or required to be registered at the time of its purchase

    The margin for your sale is the amount that the payment for your sale exceeds either:

    • an approved valuation of the property as at the first day that the previous owner was registered or required to be registered for GST
    • the GST-inclusive market value of the property as at the first day that the previous owner was registered or required to be registered for GST.

     

    Example: Margin for sale of property purchased as part of a going concern under subsection 75-11(5) of the GST Act

    In September 2009, Lee made a GST-free sale of a going concern to James, which included property. Lee originally purchased the property under the margin scheme in August 2004 for $320,000. A valuation made earlier in 2004 by the relevant state government for rating purposes revealed that the value of the property at the valuation date was $330,000. Lee was registered for GST at the time of James's purchase. Lee and James are not members of the same GST group, nor are they participants in the same GST joint venture.

    Sometime later, James decides to sell the property to Anita under the margin scheme for $880,000. Lee informs James of the existence of the valuation made by the state government in 2004 and James notes that this valuation is an 'approved valuation'. James chooses to use this valuation to work out the margin for his sale.

    Flowchart showing how the margin for sale of property purchased as part of a going concern under subsection 75-11(5) of the GST Act applies in the example.

    The margin for James's sale is $550,000; being the amount that the payment for the sale ($880,000) exceeds an approved valuation of the property as at the date Lee purchased it ($330,000).

    James would have to use the actual purchase price of $320,000 if an approved valuation was not obtained.

    End of example
    •  

    Example: Margin for a sale of property acquired from an associate without payment

    Trevor owned land on 1 July 2000, but did not register for GST until 1 October 2003. In March 2009 Trevor supplied the land to Stuart, his associate, without receiving any payment. Trevor's sale was made in the course of a business he carried on and was not a taxable sale. Trevor and Stuart are not members of the same GST group and are not participants in the same GST joint venture.

    At a later date, Stuart decided to sell the land to Angelo under the margin scheme for $550,000. Stuart obtained an approved valuation which provided that the value of the land as at 1 October 2003 was $220,000.

    Margin for a sale of property acquired from an associate without payment

    The margin for Stuart's sale to Angelo is $330,000 as this is the amount that the payment for the sale ($550,000) exceeds the approved valuation as at the first day that Trevor was registered for GST ($220,000).

    End of example

    See also:

      Last modified: 28 Jun 2017QC 18646