How much GST do you pay under the margin scheme?

Under the margin scheme the GST on a property sale is one eleventh of the margin — the sale price less what you paid for the property — instead of one eleventh of the whole price. On a development site that difference is usually the largest single line in the GST calculation, and it is settled by how you bought the land, not by how you sell it.

The calculator compares the two, splits the acquisition across the lots you are selling, and shows what the purchaser has to withhold at settlement. It assumes the selling entity is registered for GST and is selling in the course of its enterprise.

It is a way of working out the GST on a taxable sale of property. Instead of remitting one eleventh of the price, you remit one eleventh of the margin. The ATO’s standard margin is the sale price less the purchase price of the property; other bases exist — an approved valuation, for instance, where the property was held at 1 July 2000 — and which one applies is a question for your accountant, not for a calculator.

The scheme is not a concession you elect at sale time in isolation. It travels with the property: whether you can use it depends on how the person before you sold it to you.

You must be registered, or required to be registered, for GST at the time of the sale, and you must be selling the property as part of your business. Beyond that the ATO lists the situations where the scheme is closed to you. The one that catches development sites most often: you cannot use the margin scheme if you bought the property as a fully taxable supply and the margin scheme was not used on that purchase (for sales on or after 17 March 2005).

The other bars are worth reading before you assume the scheme is available: property inherited from a person who was not eligible; property obtained from a fellow GST-group member who was not eligible; property obtained as a participant in a GST joint venture from an operator who bought through an ineligible sale; and, for property purchased or contracted for on or after 9 December 2008, property bought from an ineligible entity as part of a going concern, as GST-free farmland, or from an associate for no consideration.

Generally, if the previous owner was not eligible to use the scheme, you will not be either. Where it is unclear, the ATO invites a private ruling — which is the honest answer for a page like this one to give.

For sales made on or after 29 June 2005, there must be a written agreement to use the margin scheme before the settlement date. There is no prescribed format. The agreement has to be signed by both the seller and the purchaser and clearly identify the property being sold, and it can live inside the contract — most contracts of sale carry a tick box for exactly this.

If the agreement was not made in time, you can ask the ATO to extend the period in which it may be obtained. What the ATO cannot do is apply the scheme where the parties never agreed to it. A contract that went unconditional with the box unticked is the most expensive box on the page.

Since 1 July 2018, on most sales of new residential premises and potential residential land the purchaser pays part of the price directly to the ATO at settlement, and the balance to you. The amount is one eleventh of the contract price for an ordinary taxable supply, or 7% of the contract price where the margin scheme applies. Supplies between associates for less than GST-inclusive market value are 10% of the GST-exclusive market value. All three are rounded down to the nearest dollar.

If you are selling residential premises or potential residential land you must notify the purchaser in writing whether a withholding amount is payable, and state what it is. The withholding is a payment on account, not an extra tax: it is credited against the GST you report on your activity statement, and a margin-scheme sale where 7% exceeds the GST on the margin produces a refund rather than a liability.

A lot sells for $950,000 including GST. The site it came from was acquired for $600,000, under the margin scheme, and this is the only lot. The buyer is buying new residential premises, so withholding applies.

The purchaser pays $66,500 to the ATO and $883,500 to the seller. The seller reports $31,818.18 of GST on the margin and is credited with the $66,500 already paid, so $34,681.82 comes back. That timing gap — cash out at settlement, refund at the next activity statement — is a funding question, not a tax one, and it is the part a feasibility has to carry.

The margin scheme changes revenue net of GST on every unit, which changes profit, which changes the most you could have paid for the land. The residual land value calculator works that backwards, and the quick feasibility calculator shows the whole scheme. In UpScale.build the margin-scheme flag on a land lot drives the appraisal, the monthly BAS position and the funding requirement from one place, rather than being a note beside a number.