GST margin scheme

The margin scheme is a way of working out GST on the sale of real property, where GST is calculated on the margin between the sale price and the purchase price or a valuation, rather than on the full sale price. Eligibility rules are set by the ATO.

An example

A developer who bought land from a seller who was not registered for GST sells new townhouses. With written agreement from buyers, the developer uses the margin scheme, reducing the GST payable on each sale.

Why it matters

Using the margin scheme can materially change a project's feasibility. It cannot always be used and requires written agreement, so developers should obtain tax advice early.

Points to check

Eligibility depends on how and when the property was acquired, and the seller and buyer usually need to agree in writing before settlement. Check the contract terms on GST carefully, and whether the margin is worked out using a valuation or the purchase price. The scheme can change the GST payable on sales and therefore a project's feasibility. Get tax advice early and keep the documents that support the calculation.

Try it: GST margin scheme

Related terms

• Going concern (GST-free)
• Gross realisation value (GRV)
• Feasibility study

Further reading: Australian Taxation Office