Is margin scheme available to any types of properties?

No.

Margin scheme is available on the sale (taxable supply) of:

• freehold interests in land

• stratum units, and

• long-term leases (for at least 50 years).

When you buy the development site, do you have to state that you intend to apply margin scheme when you sell?

No.

If you paid 10% GST on your purchase of the development site (without previously applying the margin scheme), can you still apply margin scheme when you sell?

No.

If you want to apply the margin scheme on your property sales, what development sites should you look for?

Margin schemes can only be used where development sites were:

• from a vendor who used the margin scheme to sell to you

• from individuals or entities that were not registered, or required to be registered, for GST (e.g. mum and dad selling their family home to a developer)

• sale is GST-Free

• sale as a going concern, provided all previous sales were eligible for the margin scheme (watch out for the GST trap)

If margin scheme applies and is noted on the contract, do you need to provide tax invoices?

No.

What if the development site was acquired prior to 1 July 2000?

Market valuation as at 1 July 2000 is used as the starting point for the margin scheme.

Can you include your costs associated with the development to reduce the margin when calculating under the margin scheme?

Not really.

Margin scheme works differently to capital gains and income tax.

All costs associated with the purchase of the development site cannot be used to reduce the margin. (e.g. legal fees, stamp duty, registration fees, development application and associated consultants, building costs, selling and marketing costs, subdivision costs)

However, GST spent on those associated costs may be claimed separately during the development on your Business Activity Statements (speak to your accountant).

How can you apply the margin scheme to a subdivided land or strata title units?

GST ruling GSTR 2006/8 allows any reasonable method of apportionment using the underlying land value when calculating the margin.

Example

Amy is a GST registered developer. She bought a 2,000 square metre land for $3,000,000.

It was decided that the value was uniform per square metre across the entire land.

Amy subdivided the land into 3 lots:

•  700 square metres for lots 1 and 2

• 600 square metres for lot 3

The land value for margin scheme purposes would be:

• Lot 1 = (700/2,000 * $3,000,000) = $1,050,000

• Lot 2 = (700/2,000 * $3,000,000) = $1,050,000

• Lot 3 = (600/2,000 * $3,000,000) = $900,000

If Amy sells Lot 1 and Lot 2 for $1,800,000 each and Lot 3 for $1,500,000. Then Amy needs to pay GST under the margin scheme as follows:

• Lot 1 = ($1,800,000 - $1,050,000) * 1/11 = $68,181.82

• Lot 2 = ($1,800,000 - $1,050,000) * 1/11 = $68,181.82

• Lot 3 = ($1,500,000 - $900,000) * 1/11 = $54,545.45

Moving Forward

GST can be very complex and is certainly something that you should not overlook.

Having a sound strategy in place from the start of your development is likely to benefit you in the long run.

If you have not already done so, please check out our other articles on margin scheme and property development.

*Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to changes over time. You should always seek professional advice beforetaking any course of action.*

References:

Division 75 of the New Tax System (Goods and Service Tax) Act 1999 (GST Act)

ATO ID 2010/83

GSTR 2006/8