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  • Eligibility to use the margin scheme

    If you sell property as part of your business and you're registered for GST, you may use the margin scheme to work out how much GST you must pay.

    If you use the margin scheme the parties must have a written agreement to use the margin scheme before settlement. For GST purposes, the settlement date is the date you purchase the property. Most contracts have a tick box stating if the sale is subject to the margin scheme.

    Watch:

    Media: Eligibility to use the margin scheme
    http://tv.ato.gov.au/ato-tv/media?v=bd1bdiudfqq1g5External Link (Duration: 1:13mins)

    On this page:

    When you can't use the margin scheme

    You can’t use the margin scheme:

    • if you purchased the property as fully taxable and the margin scheme wasn't used
    • if you weren’t registered or required to be registered for GST at the time of your sale
    • for sales on or after 17 March 2005, if you
      • purchased the property as fully taxable and the margin scheme wasn't used
      • inherited the property from a person who wasn't eligible to use the margin scheme
      • obtained the property from a fellow member of a GST group who wasn't eligible and they purchased it from an entity that wasn't a member of the GST group
      • were a participant in a GST joint venture and obtained the property from the joint venture operator who purchased the property through an ineligible sale.
    • if you're selling property originally purchased, or entered into a contract to purchase, on or after 9 December 2008 and the
      • entity you bought the property from wasn't eligible
      • property was purchased as part of a going concern
      • property was purchased as GST-free farmland
      • property was purchased from an associate for no consideration (no payment).

    If you're not sure about your eligibility, you can apply for a private ruling.

    Determining the seller's eligibility

    Generally, if the previous owner of the property wasn't eligible to use the margin scheme, you won't be able to use it. For example, if you want to use the margin scheme when selling property purchased as part of a going concern, you need to know if the previous owner was eligible to use the margin scheme.

    Example: Eligibility for the margin scheme based on previous owner's eligibility

    Steve sells a commercial property to Gemma as a fully taxable sale. Gemma isn't eligible to apply the margin scheme to a subsequent sale.

    On 30 March 2020, Gemma sells the property to Linda as part of a going concern. Linda can't apply the margin scheme because Gemma was ineligible.

    If the sale from Gemma to Linda had occurred before the 2008 amendments, Linda would have been eligible to use the margin scheme.

    End of example

    Find out about:

    Purchased as part of a going concern

    You can't use the margin scheme to sell a property if all of the following applies:

    • You purchased the property from the previous owner as part of a going concern (a business).
    • The previous owner was registered or required to be registered for GST at the time you purchased the property.
    • The previous owner purchased the entire property through a fully taxable sale (a business transaction) and GST was worked out without using the margin scheme.

    Example: Property purchased as part of a going concern where the subsequent sale is ineligible for the margin scheme

    In June 2019, Sam, a GST-registered entity, sells the business as a going concern (business) sale that includes property to Daniel.

    Sam purchased the entire property through a fully taxable sale from Hugo and the GST was worked out without using the margin scheme.

    Sometime later, Daniel seeks to sell the property. Daniel needs to work out if Sam was eligible to use the margin scheme before he can use it:

    • Daniel purchased the property from Sam as part of a sale of a going concern that was GST-free
    • Sam was registered for GST at the time of Daniel's purchase
    • Sam purchased the entire property as a fully taxable sale and GST was worked out without using the margin scheme.

    As Sam was ineligible to use the margin scheme, Daniel is also ineligible to use it.

    End of example

    Purchased as GST-free farmland

    You can't use the margin scheme to sell a property if all of the following applies:

    • You purchased the property from the previous owner as GST-free farmland.
    • The previous owner was registered or required to be registered for GST at the time of your purchase of the property.
    • The previous owner purchased the entire property through a fully taxable sale and GST was worked out without using the margin scheme.

    Example: Property purchased as GST-free farmland where the subsequent sale will be ineligible for the margin scheme

    In August 2009, Peter makes a GST-free sale of farmland to Spiro. Peter purchased the farmland through a fully taxable sale made by Jane and GST was worked out without using the margin scheme.

    Sometime later, Spiro seeks to sell the property.

    In working out if he can use the margin scheme, Spiro bought the property from Peter and all the following applied:

    • Peter sold the property to Spiro as GST-free farmland.
    • Peter was registered for GST at the time of the purchase.
    • Peter purchased the property through a fully taxable sale and GST was worked out without using the margin scheme.

    As Peter was ineligible to use the margin scheme, Spiro is also ineligible to use it.

    End of example

    Sale between associates without payment

    You can't use the margin scheme to sell a property if all of the following apply:

    • You purchased the property from an associate who was registered or required to be registered for GST at the time of your purchase.
    • The purchase of the property from your associate was without payment.
    • The sale of the property to you by your associate was not a taxable sale.
    • Your associate made the sale of the property to you in the course or furtherance of a business that your associate carried on.
    • Your associate had purchased the entire property through a fully taxable sale and GST was worked out without using the margin scheme.

    The purchase of the property from your associate does not have to be a sale for this condition to apply.

    Example: Property purchased from an associate without any payment where the subsequent sale will be ineligible for the margin scheme

    In October 2019, TowerConcepts, a GST-registered entity, supplies property to its associate Breton Builders for no payment as part of a business it carries on.

    The sale isn't taxable because Breton Builders is registered for GST and acquires the property solely for business use.

    TowerConcepts purchased the entire property through a fully taxable sale made by Eddy Construction and GST was worked out without using the margin scheme.

    Sometime later, Breton Builders wants to sell the property and checks if they're eligible to use the margin scheme:

    • Breton Builders acquired the property from an associate, TowerConcepts that was registered for GST at the time they supplied the property.
    • The sale of the property was without payment.
    • The sale from TowerConcepts to Breton Builders wasn't taxable.
    • TowerConcepts made the sale in the course of a business they carried on.
    • TowerConcepts purchased the entire property as a taxable sale and GST was worked out without using the margin scheme.

    As TowerConcepts was ineligible to use the margin scheme, Breton Builders is also ineligible to use the margin scheme.

    End of example

    Selling amalgamated land

    The margin scheme can't be used if the entire property sale is ineligible for the margin scheme.

    You may be able to use the margin scheme if part of the property purchased is eligible for the margin scheme. If you apply the margin scheme in these circumstances, you need to make an adjustment.

    Example 1: Applying the margin scheme to amalgamated land

    Chris amalgamates property she purchased partly through a supply that was:

    • ineligible for the margin scheme (the supply from Julieanne to Chris)
    • partly through a supply that was eligible for the margin scheme (the supply from Matt to Chris).

    Chris can use the margin scheme on her sale as she didn't acquire the entire property through a sale that was ineligible for the margin scheme. However, Chris must make an adjustment.

    End of example

     

    Example 2: Selling land you have amalgamated

    Julieanne amalgamates property she purchased partly through a taxable sale where GST was worked out without using the margin scheme (supply from Loretta to Julieanne) and partly under the margin scheme (supply from Matt to Julieanne).

    Julieanne sells the property to Chris as part of a GST-free sale of a going concern.

    Chris can apply the margin scheme, as Julieanne didn't acquire the entire property through a taxable sale. Chris must make an adjustment.

    End of example

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      Last modified: 05 May 2021QC 18646