Selling new homes or subdivided land? Two things decide how much GST you pay

If the sale is taxable, GST is one eleventh of the price. That is $101,009 on a sale at the Australian mean dwelling price of $1,111,100. If you are eligible for the margin scheme and the contract says so in writing, GST is one eleventh of the margin instead. The margin is the price less what you paid for the property. Development costs, stamp duty and legal fees do not come off it.

The GST margin scheme is a way to work out GST on a property sale using the margin instead of the whole price. The margin is the sale price less what you paid for the property, and GST is one eleventh of that margin. It is not automatic. You must be eligible, and you and the buyer must agree to it in writing on or before settlement.

Take the sale price, subtract what you paid for the property, and divide the result by eleven. On a $900,000 sale of land bought for $500,000, the margin is $400,000 and the GST is $36,364. Without the margin scheme, GST on the whole price would be $81,818. The build cost does not come off the margin. It gives you GST credits instead.

You can use it if you are registered for GST, the sale is taxable, you and the buyer agree in writing on or before settlement, and you did not buy the whole property through a sale that was ineligible for the margin scheme. The most common reason people miss out is buying the property as a fully taxable sale, with GST worked out the ordinary way. Since 9 December 2008, buying as a GST-free going concern, as GST-free farmland, or from an associate for nothing also rules you out if that seller was ineligible.

Yes, as long as the sale has not settled. For GST, a sale of land happens at settlement, not when contracts are exchanged. So a contract already signed without the margin scheme clause can still be fixed by a variation that you and the buyer both sign before settlement. Once it settles, the chance is gone on that lot, and each lot closes separately.

The sale is taxed on the whole price instead of the margin. The agreement has to be made in writing on or before the day of the supply, which is settlement. The Commissioner can extend the time to put an agreement in writing, but has no power to apply the margin scheme where the two sides never agreed that it applied. On a development, the difference is usually everything you paid for the land, divided by eleven.

The buyer holds back one eleventh of the contract price, or 7% if the margin scheme applies, and pays it straight to the ATO. This applies to a taxable sale of new residential premises or potential residential land. You must tell the buyer in writing before settlement. Failing to do so carries a penalty of 100 penalty units, which is $36,400. You get the withheld amount back as a credit when you lodge the activity statement for that period.

No. When a property is sold under the margin scheme, the buyer cannot claim a GST credit on the price. For a home buyer that makes no difference. For a buyer registered for GST and buying for a business, it does, which gives them a reason to say nothing and let the margin scheme clause stay blank. That is why checking the contract yourself matters.

Yes, when a registered developer sells it. Subdivided lots are potential residential land, which means land you may build a home on with nothing on it used for a commercial purpose. The sale is taxable, the margin scheme applies on the same terms as a finished home, and the buyer withholds at settlement. The one exception is a registered business buying the land for a creditable purpose.

No, and this is the most expensive misunderstanding in the subject. Section 75-14 keeps development costs, construction, stamp duty, legal fees, options, council contributions and interest out of the purchase figure entirely. The margin is the sale price less what you paid for the property. What the build does instead is give you GST credits at one eleventh of what you spent. That is worth the same money by a different route, which is why the law will not let you have both.

You pay back part of the GST credits you claimed on the build. Rent on a home is input taxed, so renting is not a creditable purpose. Under Division 129 you have an increasing adjustment at the next adjustment period ending 30 June. Keeping the property genuinely on the market while it is tenanted reduces the adjustment, and taking it off the market increases it. Rent it for five years straight with no marketing at all and the sale stops being taxable, and every credit is repaid.

You can use either what you paid, or an approved valuation of the property as at 1 July 2000 (or the day you registered for GST, if that was later). On land held since the 1990s the valuation is usually far higher than the price paid, so the margin, and the GST on it, is far smaller. A real estate agent's appraisal does not count as an approved valuation.

Because the maths is the part most developers are missing, and maths scales. GST advice and compliance is billed at $100 an hour to $500 an hour in Australia, and a written GST opinion on a development is not a one hour job. This service is not licensed to give you a recommendation and does not attempt one.