The margin scheme lets a GST-registered seller work out the GST on a taxable property sale as one-eleventh of the margin (broadly, the sale price minus what the property originally cost) instead of one-eleventh of the full sale price. It's available on eligible sales of new residential premises, commercial premises and vacant land, it requires a written agreement with the buyer on or before settlement, and the trade-off is real: the buyer can't claim any GST credit on a margin scheme purchase. You can't use it if you bought the property through a fully taxable sale on which GST was worked out without the margin scheme.
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First: does your property sale carry GST at all?
The margin scheme only matters for taxable property sales, and most property sales in Australia aren't. Selling your own home is a private sale outside the GST system entirely, and established residential premises are input-taxed even when a registered business sells them. The GST question bites on the sales an enterprise makes:
| Sale | GST treatment |
|---|---|
| Your own home (private sale) | No GST: not made in the course of an enterprise |
| Established (not new) residential premises | Input-taxed: no GST on the sale, no credits on the selling costs, whoever the seller is |
| New residential premises sold by a registered enterprise | Taxable, though premises rented out continuously for 5+ years stop being "new" (unless also held for sale throughout) |
| Vacant land or subdivided lots sold as part of an enterprise | Taxable when the seller is registered or required to be |
| Commercial premises sold by a registered enterprise | Taxable (unless sold as a GST-free going concern) |
So the margin scheme's natural users are developers and subdividers selling new homes or lots: including the accidental kind, because a one-off profit-making subdivision can be an enterprise that forces GST registration even though you'd never call yourself a developer. More on that below.
The arithmetic: one-eleventh of the margin.
Under the ordinary rules, GST on a taxable sale is one-eleventh of the price: on a $950,000 sale, $86,364. The margin scheme swaps the base. Using the consideration method, the margin is the sale price minus what you paid for the property when you acquired it:
| Full price | Margin scheme | |
|---|---|---|
| Land bought from an unregistered private owner | $400,000 | $400,000 |
| Sale price of the finished house | $950,000 | $950,000 |
| GST base | $950,000 | $550,000 (the margin) |
| GST payable (1/11 of the base) | $86,364 | $50,000 |
The logic isn't a discount. It's symmetry. The land came from outside the GST system, so no credit was ever claimed on it; the scheme taxes only the value added since. Two things people get wrong: the margin is strictly sale price minus the property's original purchase price (construction, subdivision, professional and holding costs don't get added to the cost side) and that's fine, because the GST in those development costs comes back as ordinary GST credits on your BAS along the way. You lose nothing on the build; you just can't count it twice.
Held since before 1 July 2000? The valuation method.
GST started on 1 July 2000, and property held from before that date gets a second option: the valuation method, where the margin is the sale price minus the property's value under an approved valuation, usually its value as at 1 July 2000. For land bought decades ago for a fraction of today's value, that's the difference between a token margin and an enormous one. The valuation has to follow one of the ATO's approved methods (a professional valuer's written valuation, a contract price from a contract executed before the valuation date, or a state or territory rating/land-tax valuation) and you must hold it by the due date of the BAS for the period you sell in. Property acquired after 1 July 2000 generally uses the consideration method.
Eligibility: it all depends on how the property came to you.
The margin scheme runs on a chain-of-title logic. The one thing that breaks it is a full credit already having been claimed: if you bought the property through a fully taxable sale on which the GST was worked out without the margin scheme, you can't use the margin scheme when you sell: you already got one-eleventh of the full price back as a credit, so you pay GST on the full price going out. The taint can also flow through to you even where your own purchase wasn't taxable:
| How you acquired it | Margin scheme on your sale? |
|---|---|
| From an unregistered seller (most private landowners) | Yes. The classic case |
| Under the margin scheme | Yes. The chain continues (and you claimed no credit) |
| Through a fully taxable sale, GST worked out on the full price | No. A full credit was available on the way in |
| As a GST-free going concern, or GST-free farmland | Depends: blocked if the registered seller you bought from had themselves acquired it through a fully taxable, non-margin sale |
| From an associate, or by inheritance | Depends. You generally inherit the previous owner's eligibility, good or bad |
The practical rule for anyone buying land they may one day sell with GST on it: establish the margin scheme position on the way in, in writing, because you can't repair it on the way out.
The written agreement: get it into the contract.
Using the margin scheme is a joint choice, not a seller's election. The seller and buyer must agree in writing, on or before settlement, that the sale is being made under the margin scheme. There's no prescribed form: the standard clause in the contract of sale is the usual vehicle, and a separate signed document also works. Sell without the agreement and the default applies: GST on the full price. The ATO can grant an extension of time to put the agreement in writing after the event, but it's an application you may not win, made while real money rides on the answer. Every contract for a taxable property sale should answer the margin scheme question explicitly, one way or the other.
The buyer's side: no credit, and 7% withheld at settlement.
The scheme's cost lands on the buyer: a buyer of property sold under the margin scheme can't claim any GST credit on the purchase, even fully registered and buying entirely for business. That's why the choice is commercial. Selling a warehouse to a GST-registered business? A normal taxable sale may suit both sides better: the buyer claims the full credit, so the GST is close to neutral for them. Selling townhouses to home buyers who could never claim a credit anyway? The margin scheme cuts your GST bill without costing the buyer a thing, which is why it's near-universal in residential developments.
Since 2018 there's a cash-flow layer on top: GST at settlement. Buyers of new residential premises or potential residential land generally must withhold GST from the price and pay it directly to the ATO at settlement: one-eleventh of the contract price on an ordinary taxable sale, but a flat 7% where the margin scheme applies. The seller must notify the buyer in writing whether withholding applies, the buyer lodges the ATO's two online forms (Form one to report the transaction, Form two to confirm settlement), and the withheld amount is credited against the GST the seller reports on the BAS for the period. It's a prepayment, not the final figure, so a margin well under 77% of the price ends in a refund on lodgement.
The one-off developer: when a subdivision drags you into GST.
The margin scheme's most surprised users never planned to be in the property business. Subdivide the back yard into two lots and sell them at a profit, or knock down and build two to sell, and the ATO can treat the venture as an enterprise. A one-off transaction done in a business-like way for profit is enough. Once it's an enterprise, the sale proceeds count toward the $75,000 GST registration threshold, and a single lot clears that line on its own: meaning registration before settlement, GST on the sale (this is exactly where the margin scheme earns its keep), credits on the development costs, and a BAS to lodge. Selling a genuine capital asset (the long-held rental, the family home, the farm run as a farm) is different: capital asset proceeds are excluded from GST turnover and don't force registration. The line between "realising an asset" and "running a development enterprise" is drawn on facts (intent, scale, borrowing, business-like planning) and it's worth getting advice before the excavator arrives, because registering late is messier than registering on time.
Quick answers.
What is the GST margin scheme?
An alternative way of working out the GST on a taxable property sale. Instead of paying one-eleventh of the full sale price, the seller pays one-eleventh of the margin: broadly, the sale price minus what the property cost them. It exists because property often enters the GST system part-way through its life: a developer who buys land from an unregistered private owner gets no GST credit on the purchase, so taxing the full resale price would tax value that GST never touched. The scheme is a choice, it needs the buyer's written agreement, and it's only available if the property came to you in an eligible way.
How is GST calculated under the margin scheme?
GST is one-eleventh of the margin. Under the consideration method the margin is the sale price minus what you paid for the property when you bought it. Sell for $950,000 a property you bought for $400,000 and the margin is $550,000, so the GST is $50,000: against $86,364 if GST were worked out on the full price. Construction, subdivision and professional costs don't get added to the purchase price when working out the margin; the GST in those costs comes back as ordinary GST credits on your BAS instead.
When can't you use the margin scheme?
The core disqualifier is history: you generally can't use the margin scheme if you bought the property through a fully taxable sale on which GST was worked out without the margin scheme, because you were entitled to a full GST credit on that purchase. The taint also carries through certain acquisitions: property bought as a GST-free going concern or as GST-free farmland from a registered seller who had themselves bought it fully taxed without the margin scheme, property obtained from an associate, and inherited property can all be ineligible depending on how the previous owner acquired them. Buying from an unregistered seller, or under the margin scheme, keeps eligibility alive.
Does the margin scheme have to be in the contract?
The seller and buyer must agree in writing to use the margin scheme on or before settlement. There's no set format. A clause in the sale contract is the usual way, but a separate written agreement works. Miss it and the default position is GST on the full sale price; the ATO can grant an extension of time to put the agreement in writing after the sale, but that's a request, not a right, so it belongs in the contract from the start.
Can the buyer claim GST credits on a margin scheme purchase?
No, none at all. A buyer of property sold under the margin scheme cannot claim a GST credit on the purchase, even if they're registered for GST and buying entirely for business use. That's the price of the scheme, and it's why the choice is commercial, not just arithmetic: to a GST-registered buyer of commercial property, a normal taxable sale with a full credit can be worth more than a margin scheme sale at a slightly lower price. To unregistered buyers (most home buyers) the credit is worthless anyway, which is why the scheme is standard in residential developments.
Do I need to register for GST to sell a subdivided block or a small development?
Often yes. A one-off subdivision or build-to-sell venture done to make a profit can be an enterprise in the ATO's eyes even if you don't think of yourself as a developer, and property sold as part of an enterprise counts toward the $75,000 registration threshold, a single lot usually clears it on its own. Selling a genuine capital asset or the family home is different: those proceeds don't count toward the threshold and don't force registration. Our BAS-agent service is $119 + GST if you'd rather have the registration reviewed and lodged for you, with backdating up to 4 years +$25 + GST if the enterprise started earlier than you registered.
How much does the buyer withhold at settlement under the margin scheme?
7% of the contract price. Buyers of new residential premises or potential residential land generally must withhold GST and pay it straight to the ATO at settlement: one-eleventh of the contract price on a normal taxable sale, but a flat 7% where the margin scheme applies. The seller must notify the buyer in writing whether withholding applies, the buyer lodges the ATO's two online forms (Form one before settlement, Form two at settlement), and the withheld amount is credited against the GST the seller reports on their BAS. It's a prepayment, not the final GST figure.
Related guides: Do I need to register for GST? · Crossing the $75,000 threshold · Backdating your GST registration · How GST credits work · Airbnb and GST · GST on commercial property · What is a BAS?
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