The amount of GST normally paid on a property sale is equal to one eleventh of the total sale price.
When using the margin scheme, the amount of GST on a property sale is equal to one eleventh of the margin. Use the GST property decision tool to help you with your calculations.
Calculating the margin
The margin is generally the difference between the sale price and either the:
- amount you paid for the property if you are using the consideration method
- value of the property provided in an approved valuation of the property if you are using the valuation method.
Example: Using the consideration method for property purchased on or after 1 July 2000
John is a GST registered builder. On 1 December 2020, they purchased land for $500,000 from a vendor who wasn't registered for GST.
Later, they construct a house on the land and sell the house and land for $900,000. Jan chooses to use the margin scheme to work out the GST on the sale.
The margin for the sale of the house and land package is $400,000:
Sale price $900,000 − $500,000 = $400,000.
John pays GST at one eleventh of the margin ($36,363):
$400,000 × 1 ÷ 11 = $36,363.
They have tax invoices they can claim in the tax periods the purchases apply for:
- conveyancing fees
- purchases made when building the house.
They report the sale on their activity statement in the period the sale occurred:
- G1 Total sales: $400,000
- 1A GST on sales: $36,363.
John isn't entitled to GST credits on the stamp duty as GST isn't included in the cost.
End of example
Example: Calculating the margin
Diane is registered for GST. On 25 September 2017, she buys vacant land for $500,000 from Robert, who isn't registered for GST.
Diane improves the property with roads and other services and sells it to Robert for $720,000 on 2 October 2018.
The margin is $720,000 − $500,000 = $220,000.
Diane must pay one eleventh of the margin as GST, which is $20,000.
She reports the sale on her activity statement in the period the sale occurred:
- G1 Total sales: $220,000
- 1A GST on sales: $20,000.
See also:
- GSTR 2000/21 Goods and services tax: the margin scheme for supplies of real property held prior to 1 July 2000
If the 2005 amendments apply
The margin scheme is calculated differently for certain groups when affected by the 2005 amendments.
|
Affected groups |
When all of the following applies … |
How to calculate the margin |
|---|---|---|
|
(A) GST groups |
You purchased the property when both you and the previous owner were members of the same GST group. The previous owner purchased the property from an entity that wasn't a member of the GST group on or after 1 July 2000. The previous owner was, or subsequently became, a member of the GST group. |
The margin is the amount by which the sale price that exceeds either the:
|
|
(B) GST groups |
You purchased the property when both you and the previous owner were members of the same GST group. The previous owner purchased the property before 1 July 2000. |
The margin is the amount by which the sale price that exceeds the property value as provided in an approved valuation as at 1 July 2000. |
|
(C) GST joint ventures |
You purchased the property when you were part of a GST joint venture and the previous owner was the joint venture operator. You purchased the property for the joint venture to use or sell. The previous owner purchased the property on or after 1 July 2000. |
The margin is the amount by which the sale price that exceeds either the:
|
|
(D) GST joint ventures |
You purchased the property when you were part of a GST joint venture and the previous owner of the property was the joint venture operator of the GST joint venture. You purchased the property for the joint venture to use or sell. The previous owner purchased the property before 1 July 2000. |
The margin is the amount by which the sale price that exceeds an approved valuation of the property as at 1 July 2000. |
|
(E) Inherited property |
You inherited the property and none of the sections in A to D apply. The person you inherited the property from acquired it before 1 July 2000. |
The margin is the amount by which the sale price that exceeds one of the following:
|
|
(F) Inherited property |
You inherited the property and none of sections A to D apply. The person you inherited the property from purchased the property on or after 1 July 2000. |
The margin is the amount by which the sale price that exceeds one of the following:
|
|
(G) Associates Can include purchases by a GST branch, a non-profit sub-entity or a government entity |
You purchased the property from an entity who was your associate at the time. None of the other sections above apply. |
The margin is the amount by which the sale price that exceeds either:
|
Group member
To work out your margin, treat the property payment by you or a fellow group member as being equal to the amount paid if, at the time you sell property under the margin scheme and either of the following applies:
- You haven't paid the previous owner in full.
- You are a member of a GST group and purchased the property from a fellow member of the group and that fellow group member hasn't fully paid the previous owner.
A decreasing adjustment may be required if the unpaid payment is later provided.
Associate
To work out the margin for your sale of property to an associate, treat the payment for your sale as equal to the GST-inclusive market value of the property at the time of the sale.
The GST-inclusive market value of the property is the market value without any discount for GST payable on the sale.
See also:
If the 2008 amendments apply
Under the 2008 amendments, the rules discussed for the 2005 amendments continue to apply.
The 2008 amendments affects sales of property purchased as, or as part of, a going concern or GST-free farmland or from an associate without payment. Sellers must consider the value added by the previous owner when working out the margin.
The following table shows how you are affected by the 2008 amendments to the margin scheme and how the margin is calculated if you purchased property:
- as part of a going concern
- as GST-free farmland
- from an associate without payment.
|
Date the previous owner purchased the property… |
The previous owner was … |
How the margin is calculated |
|---|---|---|
|
before 1 July 2000 |
registered or required to be registered for GST on 1 July 2000 |
The margin is the sale price that exceeds either:
|
|
before 1 July 2000 |
not registered or required to be registered on 1 July 2000 |
The margin is the amount by which the sale price that exceeds either:
|
|
on or after 1 July 2000 |
registered or required to be registered for GST at the time of purchase |
The margin is the amount by which the sale price that exceeds either:
If the previous owner purchased the property in an arm's length transaction, its expected the value of the property is equal to the payment on the day they purchased it. If the previous owner's purchase was without payment, its expected the value is the GST-inclusive market value of the property as at the time of the previous owner's purchase. |
|
on or after 1 July 2000 |
not registered or required to be registered at the time of purchase |
The margin is the amount by which the sale price that exceeds either:
|
Example: Margin for sale of property purchased as part of a going concern
In September 2018, Heather sold her going concern to Jamie, which included property.
Heather originally purchased the property using the margin scheme in August 2014 for $320,000.
A rates valuation made in 2014 by the relevant state government stated the value of the property was $330,000 on the valuation date. This was given to Jamie.
Heather was registered for GST when Jamie purchased it.
Heather and Jamie aren't members of the same GST group, nor are they part of the same GST joint venture.
In 2020, Jamie decides to sell the property to Aldo using the margin scheme for $880,000.
Jamie uses the 2014 state government approved valuation and works out the margin for her sale.
The margin for Jamie's sale is $550,000. The sale price ($880,000) exceeds the approved valuation of the property on the date Heather purchased it ($330,000).
Jamie has to use the actual purchase price of $320,000 if she didn't have an approved valuation.
Jamie reports the sale on her activity statement in the period the sale occurred:
- G1 Total sales: $550,000
- 1A GST on sales: $50,000.
Example: Margin for a sale of property acquired from an associate without payment
Aldo owned land on 1 July 2000. He didn't register for GST until 1 October 2003.
In March 2019, Aldo supplied the land to Matt, his associate, without receiving any payment.
Aldo's sale was made in the course of his business and it wasn't a taxable sale.
Aldo and Matt aren't members of the same GST group and aren't part of the same GST joint venture.
At a later date, Matt decided to sell the land to Julieanne using the margin scheme for $550,000. Matt got an approved valuation that valued the land at 1 October 2003 was $220,000.
The margin for Matt's sale to Julieanne is $330,000 – the payment for the sale ($550,000) exceeds the approved valuation on the first day Aldo was registered for GST ($220,000).
Matt reports the sale on his activity statement in the period the sale occurred:
- G1 Total sales: $330,000
- 1A GST on sales: $30,000.
See also:
Subdivided land
To work out the portion of the purchase price for a subdivided allotment or strata title unit you may use any reasonable method of apportionment.
If you purchase land and subdivide it or build strata title units on it and later apply the margin scheme, the margin is the selling price less the price you paid for the portion of property.
Example: working out the margin on subdivided land or strata title units
JWDev is a GST-registered property developer. It bought a 2,000 square metre block of land for $240,000 from a private individual who wasn't required to be registered for GST.
The block is of equal value per square metre. JWDev subdivided the block into two lots of 600 square metres each and one lot of 800 square metres.
JWDev used an area basis to work out the purchase price of the subdivided lots:
- 600sqm lots at $72,000 (600 ÷ 2,000 × $240,000)
- 800sqm lot art $96,000 (800 ÷ 2,000 × $240,000).
If JWDev sells the 800 square metre lot for $140,000, the GST payable will be the selling price minus the purchase price of the property divided by eleven, that is ($140,000 − $96,000) × 1 ÷ 11 = $4,000 in GST to pay.
JWDev reports this sale on its activity statement in the period the sale occurred:
- G1 Total sales: $44,000
- 1A GST on sales: $4,000.
See also:
- GSTR 2006/8 Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000 – paragraphs 58–68.
Mixed supply
You can apply the margin scheme to the taxable part of a mixed-supply sale, for example, partly GST-free and partly taxable.
If you obtain property through two or more individual purchases and the 2008 amendments apply to any of the individual purchases, the 2008 amendments only apply to those individual purchases, not the whole property you're selling.
You may need to make an adjustment if you have already reported the GST and there is a change in creditable purpose.
Apportionment
We consider an area-based apportionment is appropriate. Other reasonable methods may also be appropriate in some circumstances as the law doesn't expressly provide a means of working out the extent your sale is connected with each of your purchases.
Using apportionment, the margin for your sale is worked out as follows:
- Work out the area of one of the individual purchases relative to the total area being sold (expressed as a percentage).
- Multiply this percentage by the price of your sale of the entire property (or the GST-inclusive market value of your sale if made to an associate).
- Apply the 2005 and 2008 amendments if necessary.
Cost base method
You can get the same result as the apportionment method by using the following steps:
- Apply the 2005 and 2008 amendments, to work out the 'cost base' for each individual purchase. By 'cost base', we mean the payment for your purchase or any equivalent valuation, such as a GST-inclusive market value or payment provided by a GST group member for an earlier supply.
- Add the cost bases together to get your overall cost base.
- The margin for your sale is the amount the payment for your sale (or the GST-inclusive market value of your sale if made to an associate) exceeds your overall cost base.
See also:
Example: Sale of property partly purchased from an associate without payment and partly purchased from an unrelated party
In May 2009, Heather purchased two adjacent blocks of land (Block A and Block B). Block A is half the size of Block B.
Heather purchased Block A from Gemma for $400,000 through a taxable sale using the margin scheme. Gemma isn't an associate of Heather.
Heather purchased Block B from Linda, an associate, without making any payment.
Linda was registered for GST at the time Heather bought Block B and was in the course of her business, but as it wasn't for payment it wasn't a taxable sale. Linda purchased Block B in March 2007 for $600,000.
In 2019, Heather amalgamates the two blocks and sells them using the margin scheme to Thomas, an unrelated party for $1.5 million:
- Block A is one third of the total area of the interest Heather sells to Thomas.
- 1 ÷ 3 × $1.5 million = $500,000.
- Heather's partial margin is $100,000 ($500,000 − $400,000).
- Block B is two thirds of the total area. Two thirds of the sale price of $1.5 million is $1 million. The partial margin is $400,000 ($1,000,000 − $600,000) as Linda purchased the block for $600,000.
- The total margin using the apportionment method is $500,000 ($100,000 + $400,000).
The same result occurs if Heather's margin was calculated using the cost base method:
- The cost base for Heather's purchase from Gemma is $400,000 and the cost base for Heather's purchase from Linda is $600,000.
- Heather's overall cost base is $1 million ($400,000 + $600,000).
The margin using the cost base method is $500,000 ($1.5 million − $1 million), and the GST payable is one eleventh of that margin ($45,454).
Heather reports the sale on her activity statement in the period the sale occurred:
- G1 Total sales: $500,000
- 1A GST on sales: $45,454.
Making an adjustment
If you or the previous owner amalgamated property you're selling using the margin scheme, you may need to make an adjustment to the GST paid.
Amalgamating property if the 2005 amendments apply
Prior to the 2008 amendments, you have an increasing GST adjustment if all of the following applied:
- You made a taxable sale of property under the margin scheme.
- Part of the property you're selling was acquired through a sale was ineligible for the margin scheme.
- You were entitled to a GST credit for the purchase of this part of the property.
An increasing GST adjustment is an adjustment that increases your net amount of GST for the tax period. The amount of the adjustment is equal to the previously claimed GST credit for the property.
Example: Increasing GST adjustment for amalgamated land purchased partly as a going concern and partly through a taxable sale not made under the margin scheme
In December 2006, Spiro purchased land from Diane for $550,000 as a fully taxable sale and GST was worked out without using the margin scheme. Spiro claimed a GST credit of $50,000.
In March 2007, Spiro purchased an adjacent block of land from Matt as a going concern. Matt purchased the land from Linda before 1 July 2000. The land contained a shop that Spiro continued to operate. Spiro amalgamated the land under a single title.
In April 2009, Spiro was approached by a property developer, LBS Homes, to buy the land Spiro bought from Diane and Matt. Spiro sold the amalgamated land to LBS Homes using the margin scheme.
Spiro has an increasing GST adjustment for his sale to LBS Homes because:
- he made a taxable sale of property using the margin scheme
- part of the interest was made through a fully taxable sale that wasn't eligible for the margin scheme (the purchase from Diane)
- he was entitled to a GST credit of $50,000 for that purchase.
The amount of the increasing GST adjustment is $50,000 (if Spiro had no other adjustments for this purchase).
End of exampleAmalgamating property if the 2008 amendments apply
The 2008 amendments, which make you ineligible for the margin scheme when you purchase property that's a going concern, GST-free farmland or from an associate for no payment apply to any part of property you amalgamate.
Example: Increasing adjustment for amalgamated land purchased partly as a going concern
In May 2009, Linda purchased a property as part of a GST-free going concern from Eddy, who was registered for GST.
When Eddy bought the property in 2002, he purchased the entire property through a fully taxable sale and GST was worked out without using the margin scheme. Eddy purchased the property for $220,000 and was entitled to a $20,000 GST credit.
Linda amalgamated the land from Eddy with land she purchased from Rob in 2008. The sale of the land from Rob was a taxable sale and GST was worked out using the margin scheme.
Sometime later, Linda sold the amalgamated land under the margin scheme.
Linda had an increasing adjustment because:
- she made a taxable sale of property using the margin scheme
- the purchase from Eddy was a sale that was ineligible for the margin scheme
- Eddy had been entitled to a GST credit for his purchase.
The amount of the increasing adjustment is equal to either:
- one eleventh of an approved valuation of the property at the date Eddy purchased it if Linda chooses to apply an approved valuation to work out the amount
- $20,000 (one eleventh of the amount paid by Eddy for the property).
When the previous owner amalgamated the property
Under the 2005 amendments, an adjustment isn't needed to offset a GST credit the previous owner claimed.
If the 2008 amendments apply, and the previous owner purchased any part of the property (they sold to you) through a fully taxable sale that wasn't made using the margin scheme, you need to know:
- if the previous owner was entitled to a GST credit for their purchase of that part of the property
- the amount paid by the previous owner for their purchase of that part of the property.
Alternatively, if you choose to get an approved valuation to work out your adjustment, you need the date the previous owner purchased that part of the property.
If the previous owner who sold you the land had amalgamated that land and was entitled to a GST credit for the purchase of part of that land, you will have an increasing adjustment if you use the margin scheme through any of the following:
- a sale of a going concern
- GST-free farm land
- a non-taxable sale from a registered associate.
The increasing adjustment offsets the GST credit claimed by the previous owner.
Example: Increasing adjustment for property purchased as part of a going concern the previous supplier amalgamated
In April 2009, Dan purchased property as part of a going concern from Aldo. Aldo was registered for GST at the time of Dan's purchase.
Aldo purchased the (amalgamated) property he sold to Dan through two separate purchases – from:
- Loretta as a taxable sale and GST was worked out without using the margin scheme
- Peter who used the margin scheme.
The payment for Aldo's purchase from Loretta was $330,000. Aldo was entitled to a GST credit of $30,000.
Dan sells the property in August 2019 and uses the margin scheme.
Dan has an increasing adjustment because:
- he made a taxable sale of property using the margin scheme
- his purchase of the property from Aldo was GST-free.
Aldo:
- purchased part of the property as a fully taxable sale (from Loretta) that was ineligible for the margin scheme
- was entitled to a GST credit for his purchase from Loretta
- was registered for GST at the time of Dan's purchase of the property.
The amount of the increasing adjustment is equal to either:
- one eleventh of an approved valuation of the property at the date Aldo bought it from Loretta (if Dan chooses to apply an approved valuation to work out the amount)
- $30,000 (one eleventh of $330,000, the amount Aldo paid Loretta).