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  • Mixed supply

    If the property you are selling is a mixed supply, that is, partly GST-free and partly taxable, you can apply the margin scheme to the taxable part of the sale. You may need to make an adjustment.

    If you purchased the property that you are selling through two or more individual purchases, and the 2008 amendments would apply for any of the individual purchases, the 2008 amendments will only apply to the individual purchases and not to the whole property that you are selling.

    See also:


    The law does not expressly provide a means of working out the extent that your sale is connected with each of your purchases. We consider that an area-based apportionment is appropriate; however, other reasonable methods may also be appropriate in some circumstances.

    Using apportionment, the margin for your sale is worked out as follows:

    a. Work out the area of one of the individual purchases relative to the total area being sold (expressed as a percentage).

    b. Multiply this percentage by the price of your sale of the entire property (or the GST-inclusive market value of your sale if made to an associate).

    c. Apply the 2005 and 2008 amendments if necessary.

    Importantly, you do not need to apportion the payment for your purchase. The payment you provided for your purchase, unlike the sale price, relates only to that purchase (being part of the overall property you are selling) and, thus, you do not need to apportion.

    We refer to the amount you obtain in this manner as a partial margin.

    d. Repeat steps a to c for each individual purchase that you made to acquire the property you are selling.

    e. Add together the partial margins for each individual purchase. The result is the margin for your supply.

    Cost base method

    In practice, you can obtain the same result by using the following alternative steps:

    • having applied the 2005 and 2008 adjustments, if necessary, work out the 'cost base' for each individual purchase. By 'cost base', we mean the payment for your purchase or any equivalent valuation, GST-inclusive market value or payment provided by a GST group member for an earlier supply
    • add the cost bases together to obtain your overall cost base
    • the margin for your sale is the amount that the payment for your sale (or the GST-inclusive market value of your sale if made to an associate) exceeds your overall cost base.

    Example: Sale of property partly purchased from an associate without payment and partly purchased from an unrelated party

    In May 2009, Mike purchased two adjacent blocks of land (Block A and Block B). Block A is only half the size of Block B. Mike purchased Block A from Ian for $400,000 through a taxable sale made under the margin scheme. Ian is not an associate of Mike's.

    Mike purchased Block B from Linda, an associate, without making any payment. Linda was registered for GST at the time of Mike's purchase. Additionally, Linda's sale was made in the course of her business and was not a taxable sale. Linda purchased Block B in March 2007 for $600,000.

    Some time later, Mike consolidates the two blocks and sells his entire interest under the margin scheme to Terry, an unrelated party, for $1.5 million.

    Sale or property partly purchased from an associate without payment and partly purchased from an unrelated property

    If Mike's purchase from Ian had been the entire interest Mike sold to Terry, he could have used the consideration method to work out the margin. However, if Mike's purchase from Linda had been the entire interest Mike sold to Terry, he would have been ineligible to apply the margin scheme. In this case, section 75-16 of the GST Act applies. Under this provision, Mike's margin is calculated in accordance with steps a to e above for apportionment, as follows:

    • Block A is one-third of the total area of the interest Mike sells to Terry.
    • 1/3 × $1.5million = $500,000.
    • Under subsection 75-10(2) of the GST Act, Mike's 'partial margin' is $100,000 ($500,000 − $400,000).
    • Repeat steps a to c for Block B. Block B is two-thirds of the total area. Two-thirds of the sale price of $1.5 million is $1 million. Under subsection 75-11(6) of the GST Act the 'partial margin' is $400,000 ($1,000,000 − $600,000), given Linda purchased the block for $600,000.
    • The total margin is therefore $500,000 ($100,000 + $400,000).

    The same result would have been obtained if Mike's margin was instead calculated under the cost base method:

    • The cost base for Mike's purchase from Ian is $400,000 (under subsection 75-10(2) of the GST Act) and the cost base for Mike's purchase from Linda is $600,000 (under subsection 75-11(6) of the GST Act).
    • Mike's 'overall cost base' is $1 million ($400,000 + $600,000).

    Mike's margin is therefore $500,000 ($1.5 million − $1 million), and the GST payable is one-eleventh of that margin ($45,455).

    End of example
      Last modified: 28 Jun 2017QC 18646