The GST Margin Scheme: How to Pay GST on the Margin, Not the Whole Price

Australian property developers, subdividers and business sellers — FY2026–27. General information, not personal advice. Confirm the figures and your eligibility for your own facts.

Sell a property as part of your business and, unless it's exempt, you normally hand the ATO 1/11 of the full sale price in GST. On a A$900,000 sale that's roughly A$81,818 gone.

The margin scheme changes the base. Instead of GST on the whole price, you pay GST on the margin — broadly, what you sell it for minus what you paid for it. Sell that same lot for A$900,000 after buying it for A$600,000 and the margin is A$300,000, so the GST is about A$27,273. Same sale, roughly A$54,545 less GST — provided you're eligible and you set it up correctly.

That "provided" is the whole game. Here's how it works.

1. Are you even eligible?

Eligibility is decided by how you acquired the property, not by how you'd like to sell it.

The disqualifier that catches people: if you bought the property through a fully taxable sale where GST was worked out the normal way — a standard business purchase where GST was charged on the full price and a credit was available — you generally can't use the margin scheme when you resell.

You're typically eligible where you acquired the property:

•  before 1 July 2000 (pre-GST);

•  from someone not registered, and not required to be registered, for GST;

•  GST-free — as farmland or as a going concern;

•  by inheritance; or

•  from a seller who sold it to you under the margin scheme.

If your acquisition doesn't fit one of these, check carefully before you rely on the saving — this is the single most common place the scheme falls over.

2. How the margin is calculated

There are two methods, and which one you can use depends on when you got the property.

•  Consideration method — for property acquired on or after 1 July 2000. The margin is simply your sale price minus the price you paid.

•  Valuation method — for property you held before 1 July 2000. The margin is your sale price minus an approved valuation, usually the value as at 1 July 2000. You must hold an approved valuation (the rules are set out in MSV 2009/1).

Either way, the GST is the margin divided by 11. Note what does not come off the margin: your construction and development costs sit in your normal GST accounting (you claim credits on those in the usual way), not as a deduction from the margin. Folding build costs into the margin is a classic error.

3. You need a written agreement — before settlement

The margin scheme isn't automatic. The buyer and seller must agree in writing to use it, and that agreement has to be in place on or before settlement (before the supply is made). In practice most standard contracts carry a tick-box for exactly this.

Miss the deadline and you can lose access to the scheme — and the saving with it. Decide early, get it in the contract, and don't leave it to be sorted "at settlement".

4. If you're the buyer, read this first

When a sale uses the margin scheme, the buyer cannot claim a GST credit on the purchase. There's no GST separately charged to claim back.

For an owner-occupier that's usually irrelevant. But if you're a GST-registered buyer — another developer buying stock, or a business buying premises — it matters, because a credit you'd normally recover simply isn't there. Factor it into the price you agree.

There's also a settlement mechanic to know. For new residential premises and potential residential land, the buyer withholds an amount at settlement and pays it straight to the ATO (GST at settlement). When the margin scheme applies, that withholding is 7% of the contract price (versus 1/11 of the price when it doesn't). The seller then gets a credit for the amount withheld.

5. Developers, subdivisions and new builds — the core use case

This is where the margin scheme earns its keep. Subdivide a block and sell the lots, or build and sell new residential premises, and a normal taxable sale would put GST on the entire sale price of each lot. The margin scheme narrows that to the margin — often the difference between a project that stacks up and one that doesn't.

The catch loops back to Section 1: you can only use it if the land came to you in an eligible way. Buy a development site in a standard taxable deal with GST charged the normal way, and the margin scheme is off the table for those lots. Get advice before you buy the site, not after you've sold the units.

6. Land you've held a long time, or got GST-free

Bought the land before 1 July 2000, inherited it, or acquired it GST-free (farmland or going concern)? You're often in the strongest position of all — and the valuation method is why. Because your margin is measured against a valuation (typically as at 1 July 2000) rather than a low historic purchase price, a professionally supported value can shrink the margin substantially and, with it, the GST. The paperwork here is everything — see Section 8.

7. Margin scheme vs normal GST — when not to use it

The margin scheme usually wins, but not always. If your buyer is GST-registered and wants the input credit — a commercial buyer, or a developer buying your lot as stock — then a normal taxable sale lets them claim the GST back, which can make your price more attractive and leave the deal better off overall. Under the margin scheme they get no credit.

So the right answer depends on who's buying and why. Run both before you commit the contract wording — because once the scheme is (or isn't) locked into the signed contract, you've chosen.

8. The valuations and records that defend your margin

If the ATO looks, your margin is only as good as your evidence. Keep:

•  the approved valuation — right method, right date (usually as at 1 July 2000), from a suitably qualified valuer;

•  the written margin-scheme agreement (or the ticked contract clause); and

•  the acquisition history that proves you were eligible in the first place.

An undated, wrong-date or unsupported valuation is the fastest way to have your margin adjusted and GST clawed back — sometimes years later.

9. The mistakes that quietly erase the saving

•  Assuming you're eligible. You bought the site in a standard taxable deal — the scheme doesn't apply.

•  Forgetting the written agreement, or leaving it until after settlement.

•  Using the wrong valuation date, or no approved valuation at all.

•  Folding construction and development costs into the margin — they belong in your normal GST credits.

•  Assuming the buyer can still claim — they can't, and that can blow up a GST-registered buyer's numbers.

•  Selling to an associate at a soft price — the margin is worked out on GST-inclusive market value anyway.

The bottom line. Used correctly, the margin scheme can turn a five-figure GST bill on a property sale into a fraction of it — legitimately. But it lives or dies on three things: eligibility (how you acquired the land), the written agreement in time, and a defensible valuation. Get those right before you sign, not after.

General information for FY2026–27, current to the date of writing — not personal tax advice. GST figures use the 10% rate / 1÷11 factor and are illustrative. Confirm eligibility and every figure for your own circumstances.

Questions on a specific deal? Contact us at admin@epictax.com.au