The margin scheme is an alternative method of calculating the GST payable on sales of real property. It allows sellers of real property to pay GST equal to one-eleventh of the 'margin' rather than one-eleventh of the total sale price.
Depending on when, and from whom, one buys the property, the margin is generally the difference between the sale price and:
WHO CAN USE THE MARGIN SCHEME?
Entities may be able to use the margin scheme when making taxable supplies of real property where they are:
However, suppliers will not be able to use the margin scheme if they are selling real property that they:
Purchasers that acquire property under the margin scheme are not entitled to claim input tax credits for the GST they pay in the purchase price.
WRITTEN AGREEMENTS TO USE THE MARGIN SCHEME
For sales of real property made under contracts entered into on or after 29 June 2005, suppliers and purchasers of real property must agree in writing to use the margin scheme by the time the property is supplied (usually at settlement).
For real property sold under rights or options granted before 29 June 2005, suppliers are not required to make an agreement in writing with the purchaser to use the margin scheme. Suppliers must make a choice to use the margin scheme before supplying the property and have records to show the date of that election.
PROPERTY VALUATIONS
Suppliers of real property under the margin scheme may be required to have their properties valued using an approved valuation method to work out the margin on the supply.
NEED MORE INFORMATION
Behan Legal assists and advises on these important issues. For an appointment, call 03 9646 0344.
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