GST Margin scheme
The GST margin scheme is a way of working out the GST one must pay while selling a property as part of a business.
The margin scheme can only be applied if the sale of the property is taxable.
If property is purchased where the margin scheme was applied to the sale, GST credit for the GST included in the purchase price of the property cannot be claimed. The margin scheme cannot be used on property sold if the property was originally purchased as fully taxable and the margin scheme was not used. In this situation one can claim the GST included in the purchase price if the property is going to be used in the business.
Using the GST margin scheme
The amount of GST normally paid on a property sale is equal to one-eleventh of the total sale price. When the terms of the purchase are made, requirements vary depending on whether the property is purchased before 1st July 2000 or after 1st July or after 9 December 2008. In terms of the sale made, the requirements vary depending on whether the sale was made on or after 17th March 2005 or on or after 29th June 2005.
If the property is sold as part of the business and is registered for GST, you may be able to use the margin scheme to work out how much GST you must pay. Whether you can use the margin scheme depends on how and when you first purchased your property. For GST purposes the date when settlement occurs will be the date that you have purchased the property. You can use the margin scheme if you purchased the property before 1 July 2000 (the start of GST), or if it is purchased after 1 July 2000 from someone that:
- Was not registered or required to be registered for GST
- Who sold you an existing residential premises
- Who sold the property to you as part of a GST-free going concern
- Who sold you the property using the margin scheme.
You cannot use the margin scheme if when you first purchased the property the sale to you was fully taxable and the margin scheme was not used. In this case the amount of GST included in the price you paid is one-eleventh of the full purchase price. There are two methods you can use to work out the margin:
- The consideration method
- The valuation method.
- Costs for developing the property
- Legal fees
- Any options you purchased
- Stamp duty
- Any other related purchase expenses.
When you cannot use the GST margin scheme
If you were charged the full rate of GST when you originally purchased the property, the margin scheme can’t be used. Generally, if you were charged the full rate of GST when you purchased a property as part of your business you would have claimed the GST back.
Both the buyer and seller must agree in writing to apply the margin scheme if the contract for sale was made on or after 29 June 2005. The agreement to use the margin scheme must be reached by the time the property is supplied, usually at settlement.
- before 29 June 2005
- on or after 29 June 2005 but you entered into a contract or granted rights or options over the property you are selling before 29 June 2005.
Completing your activity statement
You may use either the calculation worksheet method or the accounts method to complete the relevant boxes on your activity statement for the reporting period. The amounts you report on your activity statement will depend on the accounting basis you have chosen, or are required to use. You can account on a cash basis or a non-cash basis.
Account for GST when using the margin scheme
- If you sell property and have chosen to use the margin scheme, you only report the amount of the ‘margin’ on your sale at G1 (total sales). Do not report the full amount of payment you receive.
- If the margin is nil (or a negative amount), do not report any amount at G1 (total sales).
- If you are using the accounts method, report the amount of GST on your margin at 1A (GST on sales).
- If you are using the calculation worksheet method, use the worksheet to calculate the amount of GST to report at 1A (GST on sales).
If you buy property and the GST included in the price you paid was worked out using the margin scheme, you are not entitled to a GST credit for the purchase. Do not report the amount of your payment for the purchase at G10 (capital purchases) or G11 (non-capital purchases). Do not report any GST credit for the purchase at 1B (GST on purchases).
In addition to your normal GST record keeping obligations we recommend you keep:
- accounting records for the transaction
- evidence of the original purchase price of the property
- records showing how you have applied the margin scheme and identifying the particular property that you have sold using the margin scheme
- records showing your agreement with the purchaser to use the margin scheme
- if you used the valuation method, the valuations or other documents showing how you arrived at the value of the property.
More information? To find out more, give us a call on 1300 023 782 or email firstname.lastname@example.org.
The team at C&D Restructure and Taxation Advisory are here to help. As part of the Vault Group we can offer the full suite of financial products and advice to help you navigate the business landscape. Schedule a meeting here via Calendly or give us a call on 1300 1 VAULT (1300 182 858)