GST Margin Scheme – Worked Example – GST Payable

by | Nov 14, 2016 | Property Taxation, Tax Planning

House-concrete-slab-foundation-preparation-300x213Joanne Black, a property developer, bought land in May 2015 (Post GST Start 1st July 2000) for $300,000 and constructed a house on it. In March 2016, she sold the house and land for $1,100,000. Joanne was registered for GST and incurred the following costs:

Land at cost $300,000 (including all buy costs at the time)
Local government application fees $80,000
Legal fees $2,000
Consultants $23,000
Total $405,000

All cost are net of GST, land purchased from a Mum & Dad splitting off the backyard. All other cost subject to GST have been claimed.

The cost to build the house thereafter on the land was $500,000 (net of GST), what is the GST payable under the margin scheme?

Costs of improvements made after the land was purchased are not included in the determination of cost for the margin scheme. Under the margin scheme “cost” only includes the cost of purchase and does not include any expenses in developing or improving the property. The figure used for the  is the higher of cost or the valuation obtained as at 1 July 2000 for any pre GST Land.

Under s 75-10, GST = 1/11 × [Consideration received − cost of acquisition]
Margin scheme = 1/11 × [$1,100,000 − $405,500] = $63,137.

During the holding of the land and the construction of the house, all the GST incurred is claimed on each BAS

See also – blog GST Paid by Buyer to the ATO

Checklist: Can the Margin Scheme be Used?


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