Recent changes to the GST margin schememight save you thousandsif you buy and sell property as part of your business.

The margin scheme allows you to calculate the GST payable on the ‘margin’rather than the total selling price of the property.

Depending on when the property was purchased and who it was purchased from, the margin is generally the difference between the sale price and:

  • the amount you paid for the property, or
  • an approved valuation of the property at a given date.

To be able to use the margin scheme, you must be registered for GST and be making a taxable sale of real property by:

  • selling a freehold interest in land
  • selling a stratum unit, or
  • supplying a long term lease.

The margin is not your profit margin. It does not take into account costs incurred in constructing a building or subdividing land. It is also not the difference between the sale proceeds and the valuation of the property, a valuation can normally only be used to calculate the margin where the property was acquired before 1July2000.

Purchasers of property under the margin scheme will not be entitled to claim a GST credit for the GST included in the purchase price and will also be asked by the seller to agree in writing to use the margin scheme.

You can’t use the margin scheme where you:

  • acquired the property as aGST taxable sale on which the margin scheme was not used
  • inherited the property from a person who would not have been able to use the margin scheme
  • acquired the property from a member of the same GST group that you belong to who would not have been able to use the margin scheme, or
  • are a participant in a GST joint venture, and acquired the property from the joint venture operator who would not have been able to use the margin scheme.

There are also changes to tax treatment of property you sell that was acquiredas part of a GST-free going concern or GST-free farm land or as an associate for no payment.

The GST you must pay when you sell a property you acquired in one of these ways will include the value you and the previous seller added, or it may mean that the margin scheme cannot be used ifthe previous seller was not able to use the margin scheme.

For more information search for ‘margin scheme’ on the Tax Office website call 13 28 66.