Are you in business and registered for GST? Are you planning on selling a property as part of that business? Have you heard about the margin scheme, and if so, do you understand how it works?
The margin scheme is a way of calculating the GST you must pay when you sell the property. And in some instances applying the margin scheme could save you tens of thousands of dollars!!
So how does the margin scheme work? Normally, if you are registered for GST, when you sell your property through your business, 1/11th of the sale price must be paid to the Government as GST collected.
However, if you were unable to claim GST on the purchase of the property, and you are eligible to use the margin scheme, you may only be required to remit 1/11th of the margin. The margin is the difference between the property’s selling price and its original purchase price.
It is important to be aware that if you purchase a property where the margin scheme has been applied by the seller, you are unable to claim back any GST on the purchase price.
Several conditions must be met to apply the margin scheme. One of the conditions is that the buyer and seller must have agreed to use the margin scheme before settlement. This is usually included as a clause in the contract for the supply of the property.
Contract already signed and settlement occurred? It may not be too late – in certain cases the ATO will allow an extension of time so that the agreement can be made after settlement. Speak with your accountant to see whether this is an option for you.
So what should you do? We recommend that you contact your accountant to review your draft contract (whether buying or selling) BEFORE signing to assess and explain the GST consequences of the contract, and recommend any adjustments if required.
For further information, check out the ATO website, or contact our office.