GST margin scheme is an alternative valuation system of property to be sold so that your liability for GST payment is reduced substantially. According to the ATO, the GST margin scheme is not automatic for all properties for sale, you can substantially reduce your liability of GST payment by applying for the same.
Using certain eligibility criteria for access to the GST margin scheme with Mosaic Tax Legal, you can fulfill and take advantage of the scheme.
Under the GST margin scheme, you have to pay only one-eleventh of the margin on the sale of your property. The margin on the sale is the difference between the selling price and the original purchase price of the property.
Tim purchased a property for $ 200000 made substantial renovations on the property and sold it for $ 600000.
So, if the GST margin scheme is not applied, Tim will have to pay 10% GST on $600000= $60000
But if you apply the GST margin scheme, he will pay one-eleventh of $ 600000- $400000 = $200000 x 1/11th
This way GST margin scheme substantially reduces the amount of GST that you need to pay on the sale of a new property.
Eligibility criteria for GST margin scheme:
Eligibility criteria of GST margin scheme depend on:
When the property was originally purchased
How GST was applied at the time of original purchase.
Now, if you had purchased the property before July 1, 2000, you will be eligible to use the GST margin scheme on the property because there was no GST at that time.
However, even if you have bought the property after July 1, 2000, you could still use the GST margin scheme if you satisfy one of the following conditions:
- The original seller was not registered for GST
- The property was purchased as an existing residential premises
- The original seller sold the property as GST- free supply and was eligible to use the margin scheme or
- The seller sold the property and applied the margin scheme at that time.
Conditions when you cannot apply GST margin scheme:
- When the property purchased was fully tax paid. This means the GST margin scheme was not used by the seller
- Where you got the property through inheritance and the deceased bought the property without it meeting GST margin scheme
- When you acquired the property from the operator of a joint venture in which you were a participant and the operator obtained the property in a manner that was not eligible for the GST margin scheme
- You acquired the property as a GST-free supply of a going concern.
Although most of the conditions and eligibility criteria are mentioned on the ATO website, they are not as simple and easy as they look. They are in fact very complicated and require expert understanding and advice from tax experts who know the ins and outs of tax laws and can comprehend and arrange to get your documents completed in a manner that they comply with government provisions.
Professionals at Mosaic Tax Legal have been handling GST and GST margin scheme-related issues for a long period of time and have all the requisite knowledge and experience in handling them efficiently. You can contact them for all your tax-related queries and work.