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Applying the margin scheme correctly

Make sure your clients are eligible to use the margin scheme before they sell property and calculations are correct.

Last updated 3 May 2021

The margin scheme reduces the amount of GST that would normally be payable on sales new property. It is a choice and you must be eligible for it to be applied.

The amount of GST normally paid on a property sale is equal to one eleventh of the total sale price. If eligible for the margin scheme, the amount of GST is equal to one eleventh of the margin. If your client is buying a property where the margin scheme had been applied, they can't claim GST on the purchase.

Here is some useful information to help you and your clients avoid common errors.

Consider eligibility requirements

If your client sells property as part of their business, they may choose to use the margin scheme to work out how much GST they must pay if they are eligible.

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

The margin scheme may be applied on property sales, depending on:

  • the original date of purchase
  • how GST was applied at that time
  • whether the previous owner was eligible to use the margin scheme or not.

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

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

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Agreement before settlement

If the margin scheme is being applied to the sale of property, including new residential properties and vacant land, 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.

New residential properties and vacant land sales may be subject to GST at settlement.

Calculate the margin correctly

There are two methods to calculate the margin:

  • Valuation method – for properties your clients purchase prior to 1 July 2000. The margin is the difference between the sale price and an approved valuation of the property at 1 July 2000.
  • Consideration method – for properties purchased before or after 1 July 2000. The margin is the sale price less the purchase price. Costs for developing the property and other expenses aren't included and must be claimed separately on activity statements and tax returns.

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Report the transaction correctly

Include details about the sale (or sales) when reporting GST on your client's activity statements at:

  • label G1 Total sales – enter the margin
  • label 1A GST on sales – enter one eleventh of the margin.

You may need to revise an earlier activity statement if a mistake has been made.

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