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GST on building and construction

Generally, you pay the normal GST rate of one-eleventh of a property's sale price.
However, if you're eligible, you can work out your GST liability using the margin scheme. Under the margin scheme you pay one-eleventh of the margin for the sale of the property, rather than one-eleventh of the total sale price.

Generally, you pay the normal GST rate of one-eleventh of a property's sale price.

However, if you're eligible, you can work out your GST liability using the margin scheme. Under the margin scheme you pay one-eleventh of the margin for the sale of the property, rather than one-eleventh of the total sale price.

If you sell residential premises or potential residential land:
• you may be required to notify your purchaser in writing (before settlement) whether or not they are required to withhold GST from the contract price and pay this directly to ATO
• you are still required to report the sale on your business activity statement.

Example: Using the consideration method for property purchased on or after 1 July 2000

Matt is a GST registered builder. On 1 December 2002, Matt purchased a block of land for $150,000 from a vendor who was not registered for GST.

Matt paid $550 in conveyancing fees and $7,000 in stamp duty on the purchase of the land.
Matt later constructed a house on the land and sold the house and land for $315,000. Matt chose to use the margin scheme to work out the GST on the sale.

The margin for the sale of the house and land package is $165,000, for example, the sale price of the property minus the purchase price of the property ($315,000 − $150,000).

The GST Matt must pay on the margin for the sale is $15,000 ($165,000 × 1/11th).

Matt has a tax invoice for the conveyancing fees and can claim a GST credit of $50 ($550 × 1/11th) in the tax period to which the purchase applies.

Matt also holds tax invoices for $110,000 of business purchases he made when building the house. Matt is able to claim $10,000 in GST credits for these purchases.

Matt is not entitled to any GST credits on the stamp duty as GST is not included in the cost.

Eligibility to use the margin scheme

If you sell property as part of your business and you're registered for GST,

• Sale is taxable supply

• You have not paid GST when you originally purchase the property (Land) and have not claimed GST with your BAS

• If you sell property as part of your business and you're registered for GST,

• Sale is taxable supply

• You have not paid GST when you originally purchase the property (Land) and have not claimed GST with your BAS

• Previous owner has used margin scheme and sold it you.

• If you use the margin scheme the parties must have a written agreement to use the margin scheme before settlement.

• For GST purposes, the settlement date is the date you purchase the property. Most contracts have a tick box stating if the sale is subject to the margin scheme.

When you can't use the margin scheme

You can’t use the margin scheme:

• if you purchased the property as fully taxable and the margin scheme wasn't used

• if you weren’t registered or required to be registered for GST at the time of your sale

• for sales on or after 17 March 2005, if You can’t use the margin scheme:

• if you purchased the property as fully taxable and the margin scheme wasn't used

• if you weren’t registered or required to be registered for GST at the time of your sale

• for sales on or after 17 March 2005, if you

* purchased the property as fully taxable and the margin scheme wasn't used

* inherited the property from a person who wasn't eligible to use the margin scheme

* obtained the property from a fellow member of a GST group who wasn't eligible, and they purchased it from an entity that wasn't a member of the GST group

* were a participant in a GST joint venture and obtained the property from the joint venture operator who purchased the property through an ineligible sale.

• if you're selling property originally purchased, or entered into a contract to purchase, on or after 9 December 2008 and the

* entity you bought the property from wasn't eligible

* property was purchased as part of a going concern

* property was purchased as GST-free farmland

* property was purchased from an associate for no consideration (no payment).

Purchased as part of a going concern

You can't use the margin scheme to sell a property if all of the following applies:

• You purchased the property from the previous owner as part of a going concern (a business).

• The previous owner was registered or required to be registered for GST at the time you purchased the property.

• The previous owner purchased the entire property through a fully taxable sale (a business transaction) and GST was worked out
without using the margin scheme.

Purchased as GST-free farmland

You can't use the margin scheme to sell a property if all of the following applies:

• You purchased the property from the previous owner as GST-free farmland.

• The previous owner was registered or required to be registered for GST at the time of your purchase of the property.

• The previous owner purchased the entire property through a fully taxable sale and GST was worked out without using the margin scheme.

Sale between associates without payment

You can't use the margin scheme to sell a property if all of the following apply:
• You purchased the property from an associate who was registered or required to be registered for GST at the time of your purchase. You can't use the margin scheme to sell a property if all of the following apply:

• You purchased the property from an associate who was registered or required to be registered for GST at the time of your purchase.
• The purchase of the property from your associate was without payment.
• The sale of the property to you by your associate was not a taxable sale.
• Your associate made the sale of the property to you in the course or furtherance of a business that your associate carried on.
• Your associate had purchased the entire property through a fully taxable sale and GST was worked out without using the margin scheme.

Must be a written agreement for sales on or after 29 June 2005

There must be a written agreement to use the margin scheme before settlement for sales on or after 29 June 2005.

There is no set format for a written agreement. An agreement must:

• be signed by both seller and purchaser
• clearly identify the property being sold.

The agreement could be included in the sales contract.