GST On Sale Of Property Using The Margin Scheme

GST On Sale Of Property Using The Margin Scheme
As an alternative to working out the GST under the normal method by applying 10% to the value of the property, the supplier may choose to adopt the margin scheme to work out the GST payable.
Using this method may result in a lower GST liability than using the normal method. GST is calculated on the margin between the valuation and the consideration for the supply.

How To Calculate The Margin
GST payable is 1/11th of the margin for the supply. The margin is the difference between the tax inclusive sale price and the original purchase price paid. If the property was held before 1 July 2000, a valuation is used instead of the "purchase price." The valuation point may not necessarily be at 1 July 2000, but when the vendor was required to be registered for GST purposes. Thus if the property was acquired before 1 July 2000, but you were not registered or required to be registered at 1 July 2000, the valuation of the property is at the date you became registered. The principle behind this is that GST is only to be charged on any increase in value from the date of registration.
Any improvements such as development or construction costs are not taken into account to reduce the margin. Incidental costs such as stamp duty, conveyancing fees etc which form part of the cost of acquiring the property are also not included as part of the costs of acquiring the property for GST margin calculation purposes.
However, the vendor is entitled to claim any GST credits on incidental or improvement costs as they arise in the tax period the acquisitions are attributable to.

Eligibility To Use The Margin Scheme
To be eligible to apply the margin scheme for property acquired after 30 June 2000, it must be acquired:
   from an unregistered vendor, or
   from another GST registered entity who used the margin scheme, or
   under an input taxed sale
   the property was acquired GST free under the going concern provisions or the farmland provisions and
   at the time of acquisition the vendor is registered for GST (or is required to be registered), and
   the vendor has acquired the entire interest through a taxable supply where the margin scheme was not applied.

It is important to note that you cannot use the margin scheme if you acquired the interest in real property where the vendor calculated the GST under the normal method.