If you sell property as part of your business, you may be eligible to use the goods and services tax (GST) margin scheme as an alternative way of working out the GST you must pay.
You can only apply the margin scheme if the sale of the property is subject to GST – for example, if you build new residential premises or sell subdivided vacant land that you have developed as part of your business.
If you use the margin scheme, GST only needs to be paid on the margin for the sale and not the total sale price.
You can use the margin scheme on your property sales if you bought the property before 1 July 2000 or if you bought the property after 1 July 2000 and the person who sold you the property met one of the following:
- was not registered or required to be registered for GST
- sold you old residential premises
- sold you the property using the margin scheme
- sold the property to you as part of a GST-free going concern
- sold the property to you as GST-free farmland
If you were charged the full rate of GST when you originally purchased the property, you cannot use the margin scheme because you would have been able to claim the GST back at the time of purchase.
The margin scheme can apply to all types of property including residential, commercial, retail and industrial and is particularly relevant if the purchaser is not entitled to an input tax credit for the purchase of that property.
The important thing to remember about the margin scheme is you must purchase under the margin scheme or from an unregistered party to be able to sell under the margin scheme. So always think about the end result when you purchase a property, particularly if you will most likely sell the property to someone who isn’t registered for GST. If you are not sure, talk to us at Optima Partners.
LUMYA SILWIMBA
ACCOUNTANT – OPTIMA PARTNERS
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