Margin Scheme on Sale of Vacant Land (GST on Property Sales)

Generally, the amount of GST you must pay on property sales is equal to one-eleventh of the sale price.  If eligible, you may be able to use the margin scheme on your property sale.  If applicable under the margin scheme the amount of GST payable on your property sale is one-eleventh of the margin for your sale.

The margin is generally the difference between the sale price and one of the following:

  • the amount you paid to purchase the property
  • an appropriate property valuation

Sales of vacant land can be subject to the margin scheme in certain circumstances:

  • you are carrying on an enterprise and are registered for GST
    • if you are buying a property, demolishing and subdividing this is regarded as operating an enterprise and therefore you are required to be registered for GST
  • the margin scheme may be applied to the sale of property that you purchased from a non registered for GST vendor
    • if you are buying an existing residential property this is likely to apply

If you were charged the full rate of GST when you originally purchased the property, the margin scheme can’t be used.  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.

If you have purchased property that was sold to you under the margin scheme, you cannot claim GST credits on this purchase.

To apply the margin scheme both parties need to agree in writing that the scheme is to apply.  No tax invoices are to be issued.

If you would like further information about this topic please contact Karen Burford.