The margin scheme is a way of working out the GST you must pay when you sell property as part of your business. You can only apply the margin scheme if the sale of the property is taxable.

As a seller you must have made a written agreement with the purchaser, before the settlement date, to sell the property under the margin scheme.

If you purchase property where the margin scheme was applied to the sale, you cannot claim a GST credit for the GST included in the purchase price.

If you were charged the full rate of GST when you originally purchased a property, the margin scheme can’t be used in selling the property. Generally, if you were charged the full rate of GST when you purchased a property as part of your business you would have claimed the GST back.

Eligibility to use the margin scheme depends on when you bought the property and when you are selling the property. Your eligibility can be affected by the eligibility of the person from whom you bought the property.

Methods to work out the margin

If you are selling property under the margin scheme that you originally purchased, or held an interest in, before 1 July 2000, you can calculate the GST payable using either:

• The consideration method; or
• the valuation method.

If you are selling property under the margin scheme and you originally purchased or held an interest in it on or after 1 July 2000, you must use the consideration method. You cannot use the valuation method.

Record keeping

In addition to your normal GST record-keeping obligations, we recommend you keep:

• Accounting records for the transaction;
• evidence of the original purchase price of the property;
• records showing how you have applied the margin scheme, including identifying the particular property that you have sold using the margin scheme;
• records showing your agreement with the purchaser to use the margin scheme; and
• if you used the valuation method, the valuations or other documents showing how you arrived at the value of the property.

Still not sure about how the GST and margin scheme affect you and your property? Contact IP Tax today and you can talk to an investment property strategist for expert advice.