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  • Methods to calculate the margin

    Watch:

    Media: GST and the margin scheme calculation
    http://tv.ato.gov.au/ato-tv/media?v=bd1bdiudfqq1d6External Link (Duration: 3:56mins)

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    Method depends on purchase date

    When selling property using the margin scheme that you originally purchased or held an interest in:

    Valuation method

    Use the valuation method to work out the margin if you originally purchased your property before 1 July 2000. You can only use the valuation method if you hold an approved valuation.

    Using the valuation method, the margin is the difference between the selling price and the value of the property (usually as at 1 July 2000).

    Example: Using the valuation method

    Spalding Homes is a GST-registered property developer that bought land in 1989 for $30,000.

    In September 2018 they entered a sales contract to sell the land for $1.44 million. The contract stated the margin scheme would be used to work out the GST on the sale. Settlement occurred on 2 December 2018.

    In November 2018, prior to settlement, Spalding Homes got a professional valuation of the land (as at 1 July 2000) of $1 million.

    Using the valuation method, Spalding Homes calculated the margin as $440,000. This is the selling price minus the value of the land provided in the professional valuation ($1,440,000 − $1,000,000).

    They report the sale on their activity statement in the period the sale occurred:

    • G1 Total sales: $440,000
    • 1A GST on sales: $40,000 (one eleventh of $440,000).

    Because Spalding Homes chose to apply the margin scheme, the purchaser can't claim a GST credit for GST in the price of the property.

    End of example

    Next steps:

    Consideration method

    You can use the consideration method to calculate the GST payable under the margin scheme regardless of when you purchased the property you're selling.

    Using the consideration method:

    • the margin is the difference between the property’s selling price and the original purchase price, which is sale price minus purchase price equals the margin
    • the sale price must include any settlement adjustments in the sales contract
    • don't include any of the following as part of the purchase price
      • costs for developing the property
      • legal fees
      • any options you purchased
      • stamp duty
      • any other related purchase expenses.

    Example: Using the consideration method for property purchased on or after 1 July 2000

    CarterBuild is a GST registered builder. On 1 December 2019, CarterBuild purchased a block of land for $150,000 from a vendor who wasn't registered for GST.

    CarterBuild paid $550 in conveyancing fees and $27,000 in stamp duty on the purchase of the land.

    CarterBuild constructs a house on the land and sells the house and land for $515,000. CarterBuild uses the margin scheme to work out the GST on the sale.

    The margin for the sale of the house and land package is $365,000, for example, the sale price of the property minus the purchase price of the property ($515,000 – $150,000).

    The GST CarterBuild must pay on the margin for the sale is $33,181 ($365,000 × 1 ÷ 11).CarterBuild has a tax invoice for conveyancing fees and claims a GST credit of $50 ($550 × 1 ÷11) in the tax period the purchase applies.

    CarterBuild also has tax invoices for $220,000 of business purchases made when building the house. CarterBuild can claim $20,000 in GST credits for these purchases.

    CarterBuild isn't entitled to any GST credits on the stamp duty as GST isn't included in the cost.

    They report the sale on their activity statement in the period the sale occurred:

    • G1 Total sales: $365,000
    • 1A GST on sales: $33,181.
    End of example

     

    Example: Using the consideration method for property purchased before 1 July 2000

    Jamie is registered for GST and reports GST quarterly.

    On 15 June 2019, Jamie purchased vacant land for $220,000 as part of her business. In May 2020, Jamie contracted to sell the land for $330,000 and specified she would apply the margin scheme.

    The margin for the sale of the land is $110,000; the sale price of the property minus the purchase price ($330,000 − $220,000). The GST Jamie must pay on the margin for the sale is $10,000 ($110,000 × 1 ÷11).

    She reports the sale on her activity statement in the period the sale occurred:

    • G1 Total sales: $110,000
    • 1A GST on sales: $10,000.

    Because Jamie chose to apply the margin scheme, the purchaser can't claim a GST credit.

    End of example

    Next steps:

    Rulings

    You may find the following rulings useful:

    • GSTD 2006/3 Goods and services tax: are settlement adjustments taken into account to determine the consideration for the supply or acquisition of real property?
    • GSTR 2006/7 Goods and services tax: how the margin scheme applies to a supply of real property made on or after 1 December 2005 that was acquired or held before 1 July 2000
    • GSTR 2006/8 Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000
    • GSTR 2000/21 Goods and services tax: the margin scheme for supplies of real property held prior to 1 July 2000

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      Last modified: 05 May 2021QC 18646