The margin scheme is a way of working out the GST payable when property is sold as part of a business, and it is open only to sellers who are eligible. The ATO’s building page gives the two rates side by side: generally one-eleventh of the sale price, or, under the scheme, one-eleventh of the margin. The parties must have a written agreement to use it before settlement.
General informationThe figures below are the ATO’s own examples from its methods to calculate the margin and valuations pages, with invented names, kept as the ATO gives them; where this sheet adds arithmetic of its own, it says so. They illustrate the rules and fit no real project. Where eligibility is in doubt, the ATO’s eligibility page points to a private ruling.
Two methods, chosen by date
The date the seller first bought or held the property decides the method. A seller who first bought or held it before 1 July 2000 has a choice of two methods, consideration or valuation; one who bought after that date has only the consideration method. The valuation method is open only to a seller holding an approved valuation, and it measures the margin up to the selling price from the property’s value, usually at 1 July 2000.
The consideration method: the ATO’s builder
The ATO’s example is CarterBuild, a GST-registered builder that bought a block for $150,000 on 1 December 2019 from a seller who was not registered for GST. It paid $550 in conveyancing fees and $27,000 in stamp duty, built a house, and sold the house and land for $515,000 under the margin scheme.
- Sale price, house and land
- $515,000
- Less the purchase price of the land
- $150,000
- Margin
- $365,000
- GST on the margin, one-eleventh
- $33,181
Figures from the ATO’s example. The ATO puts the GST at $33,181 ($365,000 × 1 ÷ 11), and CarterBuild reports $365,000 at G1 and $33,181 at 1A on its activity statement.
That is why the $27,000 stamp duty stays out of CarterBuild’s margin: the ATO’s list of what not to count as part of the purchase price includes stamp duty, legal fees and the costs of developing the property. Separately, CarterBuild claims GST credits where its costs included GST: $50 on its conveyancing fees, and $20,000 on $220,000 of building purchases it holds tax invoices for. It gets no credit for the stamp duty, because there is no GST in it.
For comparison only, in our own arithmetic: at the normal rate the ATO describes, one-eleventh of the whole $515,000 price would be $46,818.18.
The valuation method: the ATO’s developer
Spalding Homes, a GST-registered property developer in the ATO’s example, bought land in 1989 for $30,000. In September 2018 it contracted to sell the land for $1.44 million, the contract said the margin scheme would apply, and settlement was on 2 December 2018. In November 2018, before settlement, it got a professional valuation of the land as at 1 July 2000: $1 million.
- Sale price
- $1,440,000
- Less the approved valuation as at 1 July 2000
- $1,000,000
- Margin
- $440,000
- GST on the margin, one-eleventh
- $40,000
Figures from the ATO’s example, reported at G1 ($440,000) and 1A ($40,000).
Under the valuation method the 1989 price of $30,000 does not enter the margin. Had the same sale used the consideration method, which the ATO says is open whenever the property was bought, the margin would have been $1,410,000 and the GST $128,181.82 (our own arithmetic, for illustration).
The valuation itself has rules. It must exist by the due date of the activity statement for the period of the sale, although it does not have to be done on the valuation date itself. Once a margin is worked out on an approved valuation held by that date, the ATO says the seller cannot later switch to another valuation, another valuation method, or the purchase price. Sheet 05 lists what an approved valuation must contain.
Lots, stages and strata units
Where land is subdivided, or strata units are built on it, the margin on each lot or unit is its selling price less the part of the purchase price that belongs to it, and any reasonable method of apportionment can be used to find that part.
The ATO’s valuation examples show the same idea at scale. Morgan Group, registered for GST on 1 July 2000, held one large unsubdivided lot on that date and is developing it in four stages of at least 20 lots each. It values the single lot, shares that value across the four stages on a reasonable basis, then gives a value to each lot in each stage; the stages together cannot be worth more than the single lot. DP Dev, building 45 strata units on a vacant lot it bought in 1997, values the vacant lot as at 1 July 2000 and shares that value between the 45 units.
Land bought for $900,000 after 1 July 2000 and built into three strata units of equal size. Splitting the price equally is used here only to show the arithmetic; the ATO accepts any reasonable method.
- One unit’s share of the land price
- $300,000
- That unit’s sale price
- $750,000
- Margin on the unit
- $450,000
- GST on the margin, one-eleventh
- $40,909.09
What the buyer gives up, and who can use it
On the buyer’s side, the ATO says no GST credit can be claimed on property bought under the margin scheme. For the same reason, the ATO says no tax invoice is needed for sales made solely under the scheme; a receipt for the price may be issued. And a business that was charged the full rate of GST when it bought a property can generally claim that GST back, but cannot then use the margin scheme when it sells.
Eligibility also looks back. Generally, if the previous owner of a property was not eligible to use the margin scheme, the next one cannot use it either. Without a written agreement, the ATO can be asked for more time to get one, but it says it has no discretion to apply the scheme where the parties do not agree that it applies.