When you can and can’t use the GST Margin Scheme

Did you sell a property as part of your business? Working out the GST you need to pay on it can be tricky. One way you can do this is through Margin Scheme — using this method may also reduce the amount of GST you need to pay.

When you can use the Margin Scheme

To be eligible to use the Margin Scheme, you must:

• Be registered for GST at the time of sale.
• Ensure the sale of your property is a taxable supply.
• Not have paid GST when you originally purchased the property.

You may also meet the margin scheme eligibility requirements if the previous owner used the Scheme in their sale to you when you purchased the property. If you choose to use the Scheme, both the seller (you) and the purchaser must have a written agreement confirming the use of the Margin Scheme before settlement. Most contracts include a tick box indicating if the sale is subject to the Margin Scheme, so this part should be easy to remember.

When you can’t use the Margin Scheme

Sometimes, your eligibility for the Margin Scheme is dependent on the previous owner’s eligibility for it. In most cases, if the previous owner of the property wasn't eligible to use the Margin Scheme, you won't be able to use it either. Let’s look at a hypothetical (but common) scenario:

Steve sells a commercial property to Gemma as a fully taxable sale. Gemma isn't eligible to apply the margin scheme to a subsequent sale.

On 30 March 2020, Gemma sells the property to Linda; Linda can't apply the Margin Scheme because Gemma was ineligible. If the sale from Gemma to Linda had occurred before the 2008 amendments, Linda would have been eligible to use the Scheme.

We’re sorry to tell you the “can’ts” don’t stop with previous owner eligibility…

You also can’t use the margin scheme:

• If you purchased the property as fully taxable and the Margin Scheme wasn't used.
• If you weren’t registered or required to be registered for GST at the time of sale.
• For sales on or after 17 March 2005, if you:

- Purchased the property as fully taxable and the Scheme wasn't used.

- Inherited the property from a person who wasn't eligible to use the Scheme.

- Obtained the property from a fellow member of a GST group who wasn't eligible and they purchased it from an entity that wasn't a member of the GST group.

- Were a participant in a GST joint venture and obtained the property from the joint venture operator who purchased the property through an ineligible sale.

• if you're selling property originally purchased, or entered into a contract to purchase, on or after 9 December 2008 and the: 

- Entity you bought the property from wasn't eligible.

- Property was purchased as part of a going concern.

- Property was purchased as GST-free farmland.

- Property was purchased from an associate for no consideration (no payment).

So, what now?

You can use the Australian Tax Office’s GST property decision tool to check your eligibility and help with calculating the GST. If you're not still sure about your eligibility (and with so many “ifs, ands, or buts”, we don’t blame you!), you can apply for a private ruling. And, if you need help preparing your business finances for a sale or calculating the GST you owe, we’re ready to support you..