When you sell property as part of your business, you must pay GST(Goods and Services Tax). The GST you are obliged to pay can be calculated through the process of margin scheme, which can only be applied if the sale of the property is a taxable supply. Here at SMG, we can help you work out this complex process with accuracy with our experienced team of tax accountants.
Eligibility to use the margin scheme:
If you sell property as part of your business and you’re registered for GST, you can use the margin scheme to calculate the amount of GST you must pay. On the contrary, you cannot use the margin scheme in a few scenarios.
Determining the seller’s eligibility:
Generally, you can’t use the margin scheme if the previous owner of the property wasn’t eligible to use it.
Written agreement to use margin scheme:
There must be a written agreement to use the margin scheme before settlement for sales made on or after 29th June, 2005.
Methods to calculate the margin:
The calculation method depends on the purchase date when you sell property using the margin scheme that you originally purchased or held an interest in:
- after 1 July 2000 – use the Consideration method
- before 1 July 2000 – use either the Valuation method or the Consideration method.
Calculating the GST payable:
The amount of GST generally paid on a property sale is equal to one eleventh of the total sale price.
When using the valuation method to sell property by the margin scheme, you have to use an approved method of valuing your property. It can be done through an approved valuer, valuation based on the amount received under a contract of sale or any valuation prepared by a state or territory department.
GST at settlement:
From 1 July 2018, when any taxable supplies of new residential premises or potential residential land is bought, most buyers pay at settlement both the withheld amount of GST and the balance of the property’s sale price minus the withholding amount to the supplier.
Completing your activity statement:
When you choose to report on your activity statement depends on the accounting basis you use. You can go with either a cash basis or a non-cash basis option.
It is compulsory to keep detailed records and evidence of all accounting transactions for 5 years after the sale.
Purchasing property using the margin scheme:
If you bought the property using the margin scheme, you can’t claim a GST credit for the GST included in the buying price.
Here at SMG Group, we can assist you with any questions regarding the Margin scheme and GST. Contact us today to discuss your queries with our team of taxation professionals.