Using the margin scheme on the sale of real property
– Considering to sell real property using the margin scheme?
At a glance:
– The margin scheme is an alternative method of calculating the GST liability on the sale of real property.
– Ensure all required conditions are met before applying the margin scheme.
– Contact us if you require any clarification or advice.
Generally, GST is one-eleventh of the total sale price unless the margin scheme has been applied in which case the GST is one-eleventh of the margin.
The margin is the difference between the sale price and either:
- The amount paid for the property; or
- The market value of the property as at July 1, 2000 provided that certain conditions have been met.
The margin scheme may be applied if:
- The seller is registered or required to be registered for GST;
- The transaction is sold as a taxable supply in the course of the seller’s enterprise; and
- There is a signed written agreement between the buyer and seller stating the application of the margin scheme.
If the margin scheme is applied, the buyer will not be entitled to claim input tax credits and is not required to report the purchase on their Business Activity Statement (BAS).
However the seller will need to disclose the margin at label ‘G1 Total Sales’ and one-eleventh of the margin at label ‘1A GST on Sales’ on their BAS.
For more information about reporting the margin scheme on the business activity statement, click here.
– Both seller and buyer of the property must agree in writing to use the margin scheme.