Selling a property as part of a business? You may be able to apply the margin scheme to reduce the GST payable on the supply of the property.
The margin scheme is a method of determining the GST payable when property is sold as part of a business. The margin scheme only applies where the sale of the property is a taxable supply.
Normally the amount of GST paid on the sale of a property is 1/11th of the sale proceeds, whereas under the margin scheme the GST to be paid is 1/11th of the margin.
The margin is the difference between the sale price and
• the purchase price of the property, or
• an approved valuation of the property as at 1 July 2000 (if certain conditions are met)
The margin scheme can be very useful for reducing GST payable where GST was not charged on the purchase of the property and also where the purchase price of the property is significantly lower than its market value as at 1 July 2000.
The margin scheme cannot be used if you were charged the full rate of GST upon purchasing the property, as you would have been entitled to claim the GST credits back. It also cannot be used when the seller you purchased the property from applied the margin scheme to the sale of the property.
If the margin scheme is going to be used it is important that this be written in as part of the terms of selling the property. The ATO requires written evidence of the decision.
Pro Tips
Get your facts together. Knowing whether you were charged GST on the purchase of your premises could cut down your GST liability upon to selling the property as part of a business.
Compare the market value of your property as at 01 July 2000 to the cost you paid, the higher of the two will give you the best outcome when using the margin scheme.
Author: Heather Cox
Email: heather@faj.com.au
