Using the margin scheme on property sales

With the property market booming despite low wage growth and the after effects of the pandemic, many developers are getting back into the market. If you’re in the business of selling property, you may be able reduce the amount of GST payable on sales of new property by using the margin scheme if certain eligibility requirements are met and a choice is made.

The amount of GST normally payable on a property sale is equal to 1/11th of the total sale price, however, if you’re eligible for the margin scheme, the amount of GST is equal to 1/11th of the margin. The margin is either the difference between the sale price and an approved valuation or the sale price less the purchase price (depending on which method is used).

As an example, you sell an apartment for $500,000, the GST you would be expected to pay would be $45,454. However, if you are eligible to use the margin scheme, and the original apportioned purchase price for the apartment was $250,000, the GST you would be expected to pay would be $22,727. Note that costs for developing the property and other expenses are not included and must be claimed separately on activity statements and tax returns.

Eligibility to the margin scheme largely depends on when you bought the property, from whom you bought it from. Generally, you can use the margin scheme if you:

  • purchased the property before 1 July 2000;
  • purchased the property after 1 July 2000 and one of the following applies to the seller:
    • they were not registered or required to be registered for GST;
    • they sold you existing residential premises;
    • they sold the property to you as part of a GST-free going concern of GST-free farmland and were eligible to use the margin scheme; or
    • they sold you the property using the margin scheme.

Even if you’re eligible to use the margin scheme, you need to agree with the purchaser before the settlement date to be able to use it, which could be done by including the agreement in the sale contract. This is because if the margin scheme is applied, the purchaser of the property is not able to claim GST on the purchase, even if it was for business purposes.

In circumstances where the seller and purchaser don’t have a written agreement to use the margin scheme when the sale was made, the seller is able to request more time from the ATO to extend the time to have the agreement in writing, provided certain conditions are met. It should be noted however, the ATO does not have discretion to apply the margin scheme where both party don’t agree that it applies.

Related Articles