GST margin scheme vs standard.
GST under margin scheme
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GST if standard (1/11 of sale)
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Paying GST on the profit, not the whole sale
When a property developer sells a new residential property, GST normally applies to the full sale price at one eleventh. The margin scheme offers an alternative that can slash that bill. Under it, GST is charged only on the margin, the difference between the sale price and what the seller originally paid for the property, again at one eleventh. For land bought without GST in the first place, often an established site or a private purchase, this can roughly halve or better the GST owed. This tool runs both methods side by side so you can see the saving in dollars.
The catch is eligibility. The margin scheme is only available where the original acquisition did not itself include a GST credit, and the buyer and seller must agree in writing to use it, usually in the contract of sale. Get the paperwork wrong and the scheme is lost, so this is a decision to lock in before settlement, not after.
A subdivided block sold for $700,000
Take a developer who bought land for $400,000 and, after subdividing and building, sells a finished property for $700,000. The margin is $300,000. Here is how the two GST methods compare on the ATO's one-eleventh formula.
| Step | Amount |
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That $36,364 difference is real cash that stays in the developer's pocket. The margin scheme works hardest when the original purchase price was high relative to the eventual sale, since the margin is smaller. On a site bought cheaply and sold dear, the saving narrows because the margin approaches the full sale price. The chart contrasts the two GST figures for this deal.
The buyer cannot claim the GST back
Here is the trade-off that surprises first-time users. Under the standard method, a GST-registered buyer can usually claim back the one-eleventh GST as an input tax credit, so for them the GST washes out. Under the margin scheme, the buyer cannot claim that credit at all. For a sale to an owner-occupier who could never claim GST anyway, this makes no difference and the seller simply pockets the saving. But if you are selling to a developer or business that would have reclaimed the GST, the margin scheme may not actually advantage the deal once their position is considered. Always ask who your buyer is before assuming the scheme is the right call.
A frequent and expensive error is calculating the margin using the price you paid plus your construction and development costs. The margin is the sale price less the acquisition cost of the land only. Building costs, council fees, and your own labour do not increase the margin base, although you can generally still claim GST credits on those construction inputs separately. Confusing the two is one of the most common ways developers underpay GST and attract an ATO adjustment.
Who this is built for
This is a tool for property developers, subdividers, and anyone selling newly built residential premises who acquired the underlying land without GST. It is not relevant to an ordinary homeowner selling their main residence, since that sale is input-taxed and carries no GST in the first place. If you are turning land into housing for sale, the margin scheme is one of the first GST levers your accountant will check, and this calculator gives you a fast sense of the stakes before you get into the detailed eligibility work.
When is the margin scheme not allowed?
It is blocked where you bought the property as a taxable supply on which the full GST applied and a credit was claimed, or where you inherited the eligibility from a prior owner who could not use it. There are also special rules for properties held before 1 July 2000. The safest approach is to confirm the acquisition history in writing before relying on the scheme, because using it incorrectly leads to a GST shortfall and penalties.
Does the margin scheme save income tax too?
No. The margin scheme only affects GST. Your income tax or capital gains position on the development profit is calculated separately and is unaffected by which GST method you choose. A property held as trading stock by a developer is taxed on revenue account, while a long-held investment may attract CGT, but neither outcome changes because you elected the margin scheme.
Can I apply the scheme to only some lots in a subdivision?
Generally you choose per supply, so you can apply the margin scheme to individual sales as long as each one independently qualifies and you have the written agreement for that sale. Developers often run the numbers lot by lot, since the margin and the buyer's GST position can differ across a project. Keep clear records of the apportioned acquisition cost for each lot.