The margin scheme is an alternative way of calculating the GST payable when a seller sells a property as part of a business. The Margin Scheme can only be applied if the sale is a taxable supply. The amount of GST payable on property sales is generally one-eleventh of the sale price. Under the margin scheme, the GST is calculated on the difference between the sale price and the purchase price of the property, on the property’s value on 1 July 2000 if it was acquired before that date. Eligibility to use the margin scheme
- The property is sold as part of a business; and
- The seller is registered for GST
The margin scheme cannot be used if when the property was first purchased, the sale was fully taxable and the margin scheme was not used. In most circumstances, if the previous owner of the property was not eligible to use the margin scheme, the current owner will not be able to use the margin scheme. Eligibility to use the margin scheme must be confirmed prior to selling the property.
The Margin Scheme Conditions for eligibility
Eligibility to use the margin scheme depends on when the property was bought and when the property is sold. In determining eligibility changes made to the eligibility requirements in 2005 and 2008 must be considered. These amendments affect the eligibility to use the margin scheme where property has been purchased or acquired either from:
- inheriting the property
- an associate
- a fellow GST group member
- a fellow participant in a GST joint venture
- an associate without payment
- a GST-free sale (either as part of a going concern or farmland) where the seller was not eligible to use the margin scheme.
If none of these amendments affect the purchase or acquisition, the margin scheme may be used if:
- the property was purchased before 1 July 2000 (the start of GST); and
- the property was purchased after 1 July 2000 and one of the following applies:
- the seller was not registered or required to be registered for GST;
- the property is existing residential premises;
- the property is sold as part of a GST-free going concern or GST-free farmland, and the seller was eligible to use the margin scheme; and
- the property was sold using the margin scheme.
Written agreement to use margin scheme. If the Contract for sale was made on or after 29 June 2005 both the buyer and seller must agree in writing to apply the margin scheme. The agreement to use the margin scheme must be reached prior to completion of the sale. No written agreement between the seller and buyer is required if the sale was made either:
- before 29 June 2005; and
- on or after 29 June 2005, but the contract or an option to purchase were entered into before 29 June 2005.
The written agreement may form part of the sale contract or be a separate document. If the buyer agrees to allow the seller to apply the margin scheme, the seller must confirm in writing that the margin scheme has been applied on or before the settlement date. For further information, you should visit the ATO website: https://www.ato.gov.au/business/gst/in-detail/your-industry/property/gst-and-the-margin-scheme/
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